
Go#righl N? 



i .irr DEPosrr. 



ELEMENTARY ECONOMICS MANUAL 



CONSISTING OF 



DEFINITIONS, QUIZ QUESTIONS, PROBLEMS AND 
SUMMARIES OF ECONOMIC THEORIES 



BASED UPON 



ELY'S OUTLINES OF ECONOMICS 



BY 



THOMAS K: URDAHL, Ph. D. 

Professor of Political Economy, University of Wisconsin 



MADISON, WISCONSIN 



Copyright 1915 
T. K. Urdahl 



CANTWELL PRINTING CO., MADISON, WIS. 



JUN 19 1915 
©GI.A406383 



PREFACE 

The primary purpose of this manual is to meet the needs of 
the classes in elementary economics in the University of Wis- 
consin. It is the fifth revision and enlargement of a syllabus 
printed by the author for the use of his students in Washington 
and Lee University in 1908. Each revision has involved changes 
to remedy defects which actual experience in the class room 
have revealed. 

Some new problems and quiz questions have also been sug- 
gested from time to time by members of the teaching staff and 
have finally become incorporated in the sets of problems found 
in this book. 

This manual is based upon and designed for use in connec- 
tion with Ely's Outlines of Economics. All the chapter head- 
ings and chapter numbers follow this text, with the exception 
of the chapters on Labor which are arranged with special re- 
ference to chapters 6, 7, 8, 9 and 10 in Carlton's History and 
Problems of Organized Labor. Outlines of recent laws such 
as the Federal Eeserve Act, the Newlands Arbitration law and 
the new Anti-Trust Act, have also been included in order to 
make possible uniform required readings on these subjects. 

While the definitions and summaries may be considered very 
dogmatic when viewed from the standpoint of advanced eco- 
nomic theory, it appears to the writer that a larger amount 
of positiveness is necessary when teaching beginners than is 
advisable in advanced courses. Collateral reading and class 
discussion is relied upon to bring out the controversial aspects 
of the theories outlined. 

The definitions and summaries are intended primarily to give 
definiteness and unity to the teaching in the quiz sections. 
Some of the definitions are the result of compromises growing 
out of discussions carried on in the weekly conferences of the 
instructors in charge of quiz' sections in the course. Among the 
men who in this way have directly and indirectly contributed to 
this work are : 

Mr. Lee Bidgood, Professor of Political Economy, University of Alabama. 
Mr. F. H. Bird, Expert with the Federal Relations Commission. 



YI Preface 

Dr. E. H. Downey, Lecturer Political Economy, University of Wisconsin. 

Dr. J. A. Estey, Associate Professor Political Economy, Purdue University. 

Mr. Clytus B. Freeman, Special Agent, Census Bureau. 

Dr. L. C. Gray, Professor of Political Economy, University of Sas- 
katchewan. 

Mr. Harry Jerome, Assistant in Economics, University of Wisconsin. 

Mr. Wm. H. Kiekhoefer, Assistant Professor of Political Economy, Uni- 
versity of Wisconsin. 

Dr. W. I. King, Instructor Political Economy University of Wisconsin. 

Mr. W. E. Leonard, Instructor Economics, University of Texas. 

Mr. H. T. Lewis, Professor Economics, University of Idaho. 

Mr. J. G. McKay, Assistant in Economics, University of Wisconsin. 

Dr. Horace Secrist, Associate Professor Economics, Northwestern Uni- 
versity. 

Mr. S. L. Odegard, Expert with the Wisconsin Eailroad Commission. 

Mr. H. D. Simpson, Instructor in Economics, University of Wisconsin. 

Mr. E. S. Trent, Instructor in Economics, University of Wisconsin. 

Mr. H. E. Trumbower, Assistant Professor Political Economy, University 
of Wisconsin. 

To each and all of them the author is indebted for suggestions 
as to form and content of definitions, questions and problems. 

T. K. URDAHL. 



CONTENTS 



Chapter 

Directions to Students 1 

I. Nature and Scope of Economics 5 

II. Characteristics of Existing Economic Order 8 

III.-IV. Evolution of Industrial Society 10 

V.- VI. Economic Development of the United States 11 

VII. Economic Concepts. Wealth, Utility, Goods, Capital, etc. 17 
VIII. Consumption. Harmful, Destructive, Luxurious, etc 21 

IX. Production. Production, Capital Goods, Labor, etc 30 

X. Corporations. Entrepreneur. Capitalization, Watered 

Stock, etc. 30 

XI.-XII. Value. Price, Market, Inelastic Demand, etc 37 

XIII. Monopoly. Trust Control, The New Anti-Trust Law 45 

XIV. Money. Coinage, Seigniorage, Fiat Money, etc . 56 

XV. Credit. Reserves, Deposits, The Federal Reserve Act, etc. 67 
XVI. Banking. Crises, Index numbers, Tabular Standard, etc. 69 
XVII. Exchange. Finance Bills, Gold Points, Exchange Quo- 
tations, etc. 73 

XVIII. Tariffs. Dumping, Reciprocity, etc 78 

XIX. Distribution. Forces and Laws of 83 

XX. Distribution. Classification of Incomes, etc 87 

XXI. Rent. Economic Rent, Urban Rent, Unearned Increment, 

etc. 89 

XXII. Wages. Wage Fund, Single Tax, Marginal Productivity, 

etc. 95 

XXII A. Forces Influencing Wages. Free Land, Machinery, etc.__ 105 
XXIII. Labor Organizations. Labor Union Commandments, etc. — 112 

XXIIIA. Industrial War. Strikes, Boycotts, Sabotage, etc 119 

XXIIIB. Arbitration. Meditation, The Newlands Act., etc 125 

XXIIIC. Labor Legislation. Minimum Wage Laws, Employers 

Liability, etc. 129 

XXIIID. Cooperation, Profit Sharing, etc 134 

XXIV. Interest. Cost, Abstinence, Time Preference Theories 137 

XXV. Profits. Surplus, Risk Theories, Speculation, etc 144 



VIII 



Contents 



Chapter 
XXVII. 



XXVIII. 

XXX. 

XXXI. 

XXXII.XXXIII. 

XXXIV. 

XXXV. 

XXXVI. 



Topics. 



Page 
Transportation. Elkins Law, Hepburn Act, Clayton Act, 
etc. 150 

Insurance. Eequisites of a good Insurance Policy, etc 157 

Socialism. Communism, Anarchism, Syndicalism, etc 162 

Agricultural Problems. Rural Credit, Good Roads, etc 171 

Public Revenues. Industrial Receipts, Special Assess- 
ments, Fees, etc 173 

The Single Tax. Unearned Increment, Tax Reform, etc. — 17 6 

Taxation. Shifting and Incidence, Justification of, etc. 182 

History and Economic Thought 185 

General Instructions 187 

Topics on Labor 192 

Topics on Currency 197 

Topics on Taxes 201 

Collateral Reading-Record Sheet 203 



ELEMENTARY ECONOMICS MANUAL 



DIRECTIONS TO STUDENTS. 

Three methods of instruction are employed in this course. 
First, the quiz or discussion method which is costumary in 
secondary schools, and in elementary courses in the university. 
Its purpose is largely discipline, and to teach the student to 
reason independently. The second is the lecture and research 
method which is adapted especially to advanced students. The 
subjects discussed in each lecture are to be supplemented by 
the student by investigations based on prescribed reading and 
on observation. The third is the preceptorial or voluntary con- 
ference method, an informal discussion or exchange of ideas 
between the individual students and their instructors. 

QUESTIONS ON THE TEXT. 

I. The student is expected to use the questions in this sylla- 
bus as a guide in his preparation for the class-room discussion. 
Each instructor will as far as possible follow the printed ques- 
tions, although not necessarily in the order given in this sylla- 
bus. The student is required to read and master all the parts 
of the lesson assigned whether there are any questions on them 
or not, for every instructor may at any time supplement and 
expand the quiz questions whenever it is necessary for the 
proper development of the subject. 

PROBLEM WORK. 

II. Problems must be handed in on time in ink in prescribed 
folders and contain page and volume references to reading. 
Wherever the subject matter of a chapter lends itself to prac- 
tical or abstract reasoning, a series of exercises or problems 
has been provided. From these, specific problems will be 
assigned each week by the instructors in charge of quiz sec- 
tions. These problems must be worked up independently by 
every student and written in ink on paper of prescribed size 



2 Elementary Economics Manual 

(5%x8V2 inches) and. enclosed in folders specially provided for 
such work. All such problems are due on the last quiz section 
of each week. In writing out the solution, the student is ex- 
pected to explain, i. e., give reasons for each of his answers. 
Mere categorical statements will not suffice. Where argument 
is needed it is very important to put in every link in the chain 
of reasoning. In getting at the solution of the problem, the 
student should indicate volume and page references on all 
collateral reading used. 

COLLATERAL READING. 

III. Master at least one reference under each heading in the 
list of readings. Read widely, aim to follow some one text-book 
in addition to the required text. The collateral reading in 
Part I has for its purpose (a) to familiarize the student with 
the work and names of the leading writers on economics; (b) 
to enable the student to understand more fully the theories of 
the text by reading other explanations of the subject under 
discussion; (c) to place at the disposal of the student criticisms 
of the theories advanced in the text and lectures. 

PRECEPTORIAL WORK. 

IV. Keep a card on which you jot down unsettled points, 
questions or unsolved problems and take them to your in- 
structor for personal help. Each instructor will arrange an 
office hour or series of office hours in such a way that each 
student in his class will be able to have conferences with him 
concerning his or her work. Each instructor will observe office 
hours regularly and will be glad to be of service to any student 
wishing help. 

V. Four announced half hour written quizzes will be given 
during the lecture periods each semester in addition to the 
regular midsemester and final examinations. In addition to 
this a series of unannounced five minute exercises will be given 
from time to time during the lecture periods. 

VI. The final grade is made up of an average of 1. The 
grades on the written quizzes. 2. The grades on midsemester 
and final examinations. 3. The grades on oral work in the 
quiz section and 4. The grades on problems and topics. 



Introductory. 3 

COLLATERAL READING TOPICS. 

VII. In Part II, in addition to the reading on the lesson, the 
student is expected to group much of his reading about certain 
topics named in the syllabus and prescribed by the instructor. 
The notes taken by the student should then be arranged ac- 
cording to a carefully prepared outline like the following : 

MODEL TOPIC FORM. 



Apr. 20 




TOPIC IV. 


1914. 




THE WISCONSIN TAX COMMISSION. 


1. Eeport of 


I. History of the Tax Commission. 


Wis. Tax 


A. 


Organized in 1904. 


Comm. 1908. 




1. Successor to Board of Assessment. 


pp. 9-17. 




(a) Board of much more limited powers. 

(1) Could merely equalize between coun- 

ties. 

(2) People suspicious of central author- 

ity. 

2. One of the "progressive" measures. 

3. Modeled after Massachusetts Commission. 




B. 


Number of Commissioners reduced from five to 
three. 




C. 


Expansion of work. 
1. Supervision of local assessors. 

(a) Uniform accounts introduced. 


2. Statutes 


II. Powers granted to the Commission by law. 


of Wis. 


A. 


Right to summon witnesses. 


1907, 22-a3. 







Note. — A minimum of six of these topics is required during the second 
semester. 

RECORDS OF READINGS AND NOTE TAKING. 

VIII. Every student is required to keep a record of reading 
done from week to week on a blank furnished by the depart- 
ment for this purpose. Outline notes on collateral reading are 
to be handed in at stated intervals to instructor. Full lecture 
notes must be taken in legible form by every student. In case 
of absence from class the student is expected to borrow some 



4 Elementary Economics Manual 

fellow student's notes and copy the missing lecture. Leave 
from two to four inches of margin on the left hand side of 
each page of notes to be used for catch words or synopsis. 
Reading notes are to be handed in at request of instructor. 
Lecture notes must be ready for inspection at any lecture 
period. 



CHAPTER I. 

NATURE AND SCOPE OF ECONOMICS. 
Questions on the text. 

1. What is a science? Is economics a science? 

2. Is economics concerned primarily with wealth or man? 

3. What two kinds of poverty are there? What determines 

whether a man is really rich or not? 

4. Is the chief aim of economics to teach men how to get rich ? 

5. Is economics primarily a practical, i. e., vocational study; 

is it primarily cultural? 

6. Name the chief groups of sciences. 

7. To what group does economics belong? Name four other 

sciences in this group. 

8. What is the principal difference between this group and the 

other groups of sciences? 

9. What is a scientific law? Contrast with a statutory law; 

with an ethical law; with the laws of mathematics. 

10. Why are economic laws less eternal and invariable in 

their application than the laws of physics or chemistry? 

11. May these laws ever be changed by the conscious effort of 

man himself? How? 

12. What is the difference between natural selection and arti- 

ficial selection? How does this bear upon economic 
laws ? 

13. With what kinds of economies is economic science most 

concerned ? 

14. Contrast the size of the modern economic unit or area with 

the mediaeval unit or area. How has the European war 
affected your well being? 

15. "Man has progressed from independence to dependence, 

and from dependence to interdependence." Explain. 

16. What are the chief purposes of economic study ? 

17. Why is economic study more important today than ever 

before ? 

5 



6 Elementary Economics Manual 

Problems. 

1. Read the headings of the leading articles in the current 

number of the Literary Digest and state which ones are 
largely economic in character. 

2. Read accounts of candidates for office in the state primary 

bulletin and estimate the percentage of economic prob- 
lems, political problems and other problems in the state- 
ments of the group. 

3. What political, economic and other issues are there in the 

present campaign in Wisconsin? 

4. Congress during the past session passed the following im- 

portant measures. Which ones are largely economic in 
character ? 

Joint Resolution for the relief of the destitute in Mexico. 

Act to reduce tariff duties and to provide revenue. 

Act providing legislation for Panama Exposition. 

Act providing for free importation of articles for the Panama 
Exposition. 

Act restricting the use of the injunction in labor disputes. 

Act providing for the mediation, conciliation and arbitration 
of controversies between employers and employees. 

Act relating to the carrying of dangerous articles on passen- 
ger steamers. 

Act to reduce taxation to provide revenue for the government. 

Act making appropriations for fortifications and works of de- 
fense. 

Act relating to proof of signatures and handwriting in any 
process before a U. S. court. 

Act divesting intoxicating liquors of their interstate character 
in certain cases. 

Act making appropriations for the support of the army. 

Act extending authority to receive certified checks drawn on 
National Banks, Trust Companies and State Banks in 
payment of duties on imports, and internal taxes and all 
public revenues. 

Act relating to invalid pensions and accident insurance. 

Act creating a department of labor. 



Elementary Economics Manual 7 

Act making appropriations for naval service. 

Act providing for the establishment of Federal Reserve Banks. 

Act regulating the loaning of money on securities of persons, 
firms, and corporations. 

Act relating to the limitation of hours of service of laborers 
and mechanics in employ of the government. 

Act extending the power of the Commissioner General of Im- 
migration. 

Act providing for an enlarged homestead. 



CHAPTER II. 

CHARACTERISTICS OF EXISTING ECONOMIC ORDER, 

Quiz Questions. 

1. Name the elements of environment of man that are essen- 

tially part of nature or are of natural origin. 

2. Name the chief elements that are largely human, i. e., man- 

made arrangements. 

3. Name some of the latter which are legal ; which are economic. 

4. Enumerate the legal foundations of the present economic 

system. What legal conditions are necessary to the ex- 
istence of the present economic system? 

5. Name the chief economic features of the present industrial 

system. 

6. Explain four different kinds of freedom included in the 

concept "industrial liberty." 

7. What kinds of freedom are guaranteed in the federal con- 

stitution ? 

8. What kinds of freedom are being expanded and what kinds 

are being restricted in modern times? 

9. What is meant by competition? Contrast with rivalry. 

10. Does custom ever interfere with competition? Cite exam- 

ples. 

11. Is custom or competition dominant in the management of 

cotton factories? funerals? steel mills? weddings? build- 
ing operations? churches? Which have changed most 
rapidly ? 

12. Can effective competition exist without freedom of contract? 

13. Can extensive trade exist without division of labor? 

14. What is the essential difference between competitive and 

monopolistic industry? 

15. In what two ways does the average man take part in the 

competitive contest? 



Characteristics of Existing Economic Order 9 

Problems. 

1. Discuss the evolution of the property concept under the fol- 

lowing heads : 

(a) Origin of private property. 

(b) Property in land. 

(c) Property in human beings. 

(d) Property in tangibles, e. g. stocks and bonds. 

(e) Limitations upon property rights, e. g. eminent 

domain, taxation, police power. 

References : 

Ely, Property and Contract, pp. 361-415. 

2. Discuss the evolution of freedom of contract under the fol- 

lowing heads : 

(a) Contracts and their enforcement in primitive civ- 

ilization. 

(b) Sanctity of contract and the development of credit 

and banking institutions. 

(c) Contract in the Federal Constitution. 

(d) The Dartmouth College Case and the extension of 

the concept to franchises. 

(e) Limitations upon freedom of contract in cases of 

women and children. 

3. Write an account of the organization of production in Eng- 

land before the Industrial Revolution. 

References : 

Adam Smith's Wealth of Nations. Book I, Ch. X, 
Part II. 



CHAPTERS III AND IV. 

THE EVOLUTION OF INDUSTRIAL SOCIETY. 
Quiz Questions. 

1. Contrast evolution with revolution. 

2. Define economic civilization. How do you measure the 

degree of economic civilization which a nation has at- 
tained ? 

3. Using control over nature as a principle of classification, 

name the five stages into which industrial history is 
classified. 

4. In what stage does the Domestic System occur? What are 

the characteristics of the system? 

5. In what stage does the Mercantile System occur? Enumer- 

ate the chief features of the system. 

6. "What stages are there if the size and character of the 

economic unit is taken as the principle of classification? 

7. What classification have you if the condition of labor is 

made the principle of classification? 

8. What are the chief characteristics of the pastoral stage? 

9. Name the most important characteristic of the agricultural 

stage. 

10. What period in English history would be included in the 

agricultural stage? 

11. What are the characteristics of the manorial system? 

12. What changes were wrought in the manorial system by the 

Norman conquest? 

13. What is meant by the Industrial Revolution? 

14. When and where did it occur? 

15. What book is characterized by Professor Ely as the ' ' most 

famous book ever written on economics?" 

16. What inventions helped to usher in the Industrial Revolu- 

tion, in the textile industry; in the iron industry; in 
transportation ? 

17. What agricultural changes were ushered in by the Indus- 

trial Revolution? 

10 



The Evolution of Industrial Society 11 

18. What effect did the Industrial Revolution have upon the 

English laborers? 

19. What effect did it have upon English industry and mar- 

kets? 

20. What is meant by the policy of "laissez faire"f 

21. Name examples of the reaction against the laissez faire pol- 

icy in England after 1850. 



CHAPTER V. 

THE ECONOMIC DEVELOPMENT OF THE UNITED 

STATES. 

1. In what respects has the economic development of the United 

States differed from that of Europe 1 ? 

2. According to the first classification, what economic stages 

has the United States passed through in the last two hun- 
dred years? 

3. Are the different sections of the country in different indus- 

trial stages at the present time? 

4. "What is meant by sectionalism? 

5. Enumerate the chief sectional struggles in the history of the 

United States. 

6. What effect has the rapid expansion of population over the 

continent had upon the racial traits and characteristics of 
the American people? 

7. What is meant by the race-suicide problem? 

8. Explain the significance of the city problem. 

9. What do you understand by the negro problem? 

10. What are the economic aspects of the negro problem? 

11. What races has the United States failed to amalgamate? 

12. Explain the public land problem. 

13. What influence has free land had on the character of the 

American laborer? 

Problems (Topics). 

1. The city problem in the United States. 

References : 

Hart, The Rise of the American Cities. 
Orth, S. P., Socialism and Democracy in Europe. 
Strong, Josiah, The Challenge of the City. 
Weber, A. P., Growth of Cities in the 19th Century. 

2. The land of the landless, or the effects of the American 

methods of disposing of the public land upon American 
industry and life. 

12 



Economic Development of the United States 13 

3. A million immigrants a year — their effect upon industry, 
life and government in the United States. 

References : 

Warne, The Immigrant Invasion, p. 120. 

Ogg, World's Work, XIV, 1879. 

Ross, E. A., Changing America, p. 32, 

Roberts, The New Immigration. 

Commons, J. R., Races and Immigrants in America, 

p. 120. 
Hourwich, I. A., Emigration and Labor. 
Mayo-Smith, R., Emigration and Immigration. 



CHAPTER VI. 

THE ECONOMIC DEVELOPMENT OF THE UNITED 

STATES. 

1. What evidence is there that Mercantilism ever flourished in 

the American colonies? 

2. What were colonies for, according- to the Mercantile doc- 

trine ? 

3. Name the chief features of the Navigation Acts. 

4. Enumerate the chief industries in the American colonies in 

1776. 

5. What effect did the Revolutionary War have on American 

industries ? 

6. Where did the factory system first become established in 

_ America 

7. Why did it develop at that time? 

8. Did America have an industrial revolution? 

9. Why were the evils growing out of the Industrial Revolution 

less in the United States than in England? 

10. Has the migration from the country into the city been caused 

by a tendency toward consolidation of farms in the United 
States? 

11. Has agriculture become a capitalistic industry? 

12. Has the percentage of the population engaged in agriculture 

increased since 1840? 

13. What is the chief difference between the form of organiza- 

tion of business now, and in the first half of the 19th 
century ? 

14. What effect has this change of organization had upon the 

relation of employers and employees? 

15. Has the size of the industrial unit tended to increase or de- 

crease ? 

16. What causes have brought about this result? 

17. Contrast the effect of the Industrial Revolution on agricul- 

ture in England with the changes that occurred in agri- 
culture in the United States. 

18. Contrast integration with centralization of industry. 

14 



Economic Development of the United States 15 

19. What is meant by the "turnpike" period in the history of 

American transportation ? 

20. When was the "river and canal period" of transportation 

and what were its chief characteristics? 

21. What is the most important feature of the last period of 

transportation history ? 

22. Name five periods in the history of American trades union- 

ism. 

23. What counter movement among employers has the labor 

union movement produced? 

24. How has the doctrine of "laissez faire" affected legislation 

in the United States? 

25. What influence has this doctrine had on the interpretation 

of American laws? 

26. Is a protective tariff in harmony with the doctrine of the 

laissez faire? 

27. Name some laws passed in recent years that are contrary to 

the principle of laissez faire. 

Problems. 

1. When and by whom was the Mercantile System first applied ? 

See Ingram, J. K., History of Political Economy, 36-45. 
Rabbeno, Am. Com. Policy, Ch. 1 : 2-6. Schmoller, 
The Mercantile System. 

2. Was the English Mercantile policy with respect to colonies 

advantageous or injurious to the colonies? 

See Adam Smith, Wealth of Nations, Bk. IV, Ch. 7, 
Pt. 2. Rabbeno, Ch. 3. Beer, G. L. Commercial 
Policy in England (Cambridge History), Chaps. II 
and IV. 

3. Was the English Mercantile policy advantageous to England ? 

See Ricardo, Principles of Political Economy, Ch. 25. 
Rabbenou, 37-47. Lord, E., Industrial Experiments 
in British Colonies of North America, 56. 

4. When, where and how did the changes corresponding to the 

Industrial Revolution in England take place in the United 
States? 



16 Elementary Economics Manual 

See Coman, Industrial History of U. S., 180-18. Bishop, 
J. L., History of Am. Mnfrs., Ch. 3. American State 
Papers— Finance II, 666-689. Bogart, E. L., Eco- 
nomic History of the United States, 142-52. 

5. Discuss the evolution of some integrated industry in the 
United States. 

United States Steel, Smith's Story of Steel. General 
Electric Co. Tarbell, Ida, Standard, Oil Co. Tower, 
W. S., The Story of Oil. 



CHAPTER VII. T 

ELEMENTARY CONCEPTS. 
Definitions. 

I. WEALTH from the Social point of view. 

(a) Social Wealth means the aggregate of material goods 

on hand at a given time. 

WEALTH from the Individual point of view. 

(b) Private Wealth consists of economic goods or of 

rights to such goods, i. e., goods that possess utility 
and are relatively scarce. 

II. UTILITY is the quality in goods of affording satisfaction 
to human want. 

III. PROPERTY means legally recognized claims or rights to 

goods. 

IV. GOODS from the economic point of view are things, 

services, or rights that are capable of satisfying 
human wants, i. e., are desired or wanted by human 
beings. 

(a) Free goods are those that at a given time and place 

and without incurring cost to any one exist in quan- 
tities sufficient to supply all wants for them. 

(b) Economic goods (see text). 

V. CAPITAL from the Social point of view. 

(a) Social Capital means every product of past industry 
actually used or held for further production of so- 
cial wealth. 

VI. CAPITAL from the Individual point of view. 

(a) Public Capital consists of goods owned by a govern- 
mental organization and used in the production of 
social wealth or the acquisition of revenue. 
17 



18 Elementary Economics Manual 

(b) Private Capital consists of goods, rights or privileges 

used in the production or acquisition of wealth for 
the owner. 

(c) Acquisitive Wealth (acquisitive capital) consists of 

all that part of private capital which is not used or 
held for the further production of social wealth. 

Quiz Questions. 

1. Name the chief motives for economic activity. 

2. What is utility? Contrast goods having utility with mere 

things. 

3. Contrast free goods with economic goods. Are free lunches 

in a saloon free goods? Are free text-books in a public 
school free goods? 

4. Is hydrant water an economic good in Madison? Is lake 

water ? 

5. Is there a tendency towards increasing the number of free 

goods? How? 
G. What two kinds of economic goods are there? Name some 
things that are economic goods today that were not 
economic goods ten years ago. 

7. Cite an example of individual wealth which is also social 

wealth. 

8. Cite an example of social wealth which is not individual 

wealth. 

9. Contrast private wealth with private property. 

10. Contrast social wealth with public wealth (possessions of 

govt.). 

11. Contrast consumption goods with production goods. 

12. What is private capital? Contrast social capital with pub- 

lic capital ; social capital with acquisitive capital. 
13". Is a piano social capital? Is a gambler's outfit social capi- 
tal? Acquisitive capital? 

14. Is it possible that the total wealth of a country may increase 

while the aggregate well-being is decreasing? Explain. 

15. What is included in the concept of the social income of 

the people of the nation? 

16. Is a surgeon's skill wealth? Why? 



Elementary Concepts 19 

17. Name three characteristics of land that social capital does 

not possess. 

18. Name the most important classes or categories of the 

wealth of our nation. 

19. State the relative importance of each. 

20. Contrast the social income of the whole nation with its 

social wealth. 

21. May the social income of the nation be increased without 

increasing the well-being of the nation as a whole? 

22. May the social income of a nation be increased without in- 

creasing the amount of social wealth ? 

Problems. 

1. Are the following social or private wealth, both or neither? 

a church ; a farm ; a rare postage stamp ; a lake view 
from the campus ; a stone quarry near the South Pole ; a 
ten thousand dollar diamond at the bottom of the deepest 
part of the Atlantic Ocean; Lake Michigan; a mortgage 
on a farm; the sun. Give reasons for your opinion in 
each case. 

2. Suppose that the U. S. government should freely place at 

the disposal of the people, machines for getting great 
quantities of electricity from the water used in the house- 
hold, thus obviating the need of electric power houses 
and causing their abandonment and the discharge of the 
men employed there. Assume that each machine cost the 
government $2.00 and could be operated without cost; 
would the new machines benefit or injure the American 
people? 

3. Are the following private or social capital, both or neither? 

A dray ; an excursion steamer ; an air gun in the hand of a 
boy; a student's text-book; a piano used in a dancing 
academy; a theatre; a church; Madame Melba's dia- 
monds; a fraternity pin; a U. S. bond; a shoe factory. 
Explain why in each case. 

4. Is it possible to double the amount of private property 

without doubling the social wealth of a nation? How? 
Is it possible to double the amount of social wealth with- 



20 Elementary Economics Manual 

out increasing the amount of the private property of a 
nation ? How ? 

5. If the whole human race were entirely fed with manna 

freely placed at the disposal of every human being by 
Providence, what would be the resulting changes in the 
kind and quantity of social wealth in the U. S.? How 
would it affect the total social income of the people of 
the United States? 

6. If any one could sink a well and find oil in his back yard 

as easily as he can now find water, and if drinking water 
should become relatively as scarce as oil at present is, 
would the amount of social wealth; real income be in- 
creased or decreased in the United States ? Explain why. 

7. Discuss the effect of the European war upon the increase 

or decrease of social wealth or social capital ; private 
property ; public property in France. 

8. Explain five ways in which private property rights may be 

created without really increasing the amount of social 
wealth of a nation. 



CHAPTER VIII. 

CONSUMPTION. 
Definitions. 

1. CONSUMPTION (Final Consumption) means the use of 
goods in the direct satisfaction of human wants. 

II. HARMFUL CONSUMPTION means that use of goods in 

the direct satisfaction of human wants which directly or 
indirectly gives rise to a social problem. 

III. DESTRUCTIVE CONSUMPTION is that form of con- 

sumption in which the satisfaction derived is trivial 
compared with what could ordinarily be obtained by 
other uses of the goods. 

IV. THE INITIAL UTILITY OF CONSUMPTION is the 

utility of the first unit of the goods consumed. 
V. THE FINAL UTILITY OF CONSUMPTION is the utility 

of that unit of the goods last consumed. 
VI THE MARGINAL UTILITY of goods in a stock may be 

viewed either from the standpoint of the prospective 

purchaser or of the prospective seller. 

To the Prospective Purchaser the Marginal Utility of 

goods in Stock is the importance which he would attach 

to an additional unit of the commodity at the present 

moment. 

To the Prospective Seller the Marginal Utility of Goods 
in Stock is equal to the amount of the sacrifice that he 
believes he would undergo through the loss of a single 
unit. 
VII. LUXURY means the consumption of goods which, accord- 
ing to the customary standard of living of the class 
concerned, are not considered essential to maximum 
efficiency of the individual, or of the group to which he 

belongs. 

21 



22 Elementary Economics Manual 

Quiz Questions. 

1. Define and cite examples of utility; (a) initial utility; (b) 

final utility ; (c) total utility. 

2. What is meant by the final consumption of goods ? Do men 

produce in order to consume or do they consume in order 
to produce? Do men consume chairs? Oil paintings? 
Air? 

3. Is the burning of coal in a factory engine consumption? 

4. A laborer eats nourishing food so that he may be able to 

endure hard work. Is this productive consumption? 

5. Do men's wants tend to increase or decrease in number as 

they become more civilized? 

6. Is the utility of a loaf of bread ordinarily greater than the 

utility of a diamond? 

7. What is meant by the subjective value of a thing? May the 

subjective value of a diamond be greater to an individual 
than its power to satisfy his wants? 

8. May the utility of a thing be greater to one person than to 

another? Cite an illustration. 

9. Suppose a boy consumes four apples, and suppose the utility 

of the fourth apple is ten, would the total utility of all 
four apples be forty ? Why. 

10. What is meant by the economic order of consumption? 

11. Does a hungry burglar in a bakery follow the economic 

order of consumption? What other order of consumption 
may he follow? 

12. Do future wants influence the nature of a man's expendi- 

ture today? Are present or future wants relatively 
stronger to a man who saves? 

13. Are present or future wants relatively stronger during the 

existing European war than in times of peace? May 
France or Germany as nations consume future products 
during the war? How? 

14. If a man has ten dollars, is the utility of any one of them 

less than that of any of the others? 

15. Is the utility of a dollar to Mr. Rockefeller as great as it is 

to a laborer? May it be greater? 



Consumption 23 

16. Does a poor man always get more pleasure out of the ex- 

penditure of a dollar than a rich man? Does he ordin- 
arily do so? 

17. Is it possible for a nation to save too much and spend too 

little ? For an individual ? How ? 

18. Name the chief motives for saving. Are any of those mo- 

tives disappearing? 

19. What modern institutions are there that encourage saving 

20. Is coffee a luxury? "Was it a luxury formerly? Are auto- 

mobiles a luxury? Bicycles? 

21. Does a man encourage the production of luxuries by using 

them? Does he discourage the production of anything 
else? How? 

22. Does not the man who buys an automobile or a race horse 

put money into circulation and thus benefit the laboring 
class ? 

23. What is meant by harmful consumption? 

21. Is it harmful consumption if a man takes poison in order 
to commit suicide? If he eats adulterated food? If he 
eats excessive quantities of beefsteak? If he takes mor- 
phine regularly? "Why? 

25. If a man's income is increased twenty per cent, is his out- 

lay for clothes also increased twenty per cent? His out- 
lay for rent? For sundries? 

26. If a man's income is doubled will he spend twice as much 

for subsistence as before? 

27. What is a fair living wage for a working man's family in 

New York? In Madison? 

28. State the main propositions in what are known as Engel's 

laws. Which of these failed to hold true in the U. S. in 
1903? 

Problems. 

1. Does the utility of a unit of each of the following articles 

diminish as the stock of each is increased? Money? 
Clothes? Producer's goods? Land? Cite examples and 
explain fully. 

2. (a) A man accidently burns a dollar bill. Is that con- 

sumption? Suppose he is selling patent medicine on a 



24 Elementary Economics Manual 

street corner and uses it to light his cigar in order to 
attract attention. Is his act final consumption insofar as 
he is affected? (b) Suppose a servant uses his employ- 
er's books to kindle a fire in the furnace; is that normal 
consumption? "Why? (b) Nero ordered his servant to 
set fire to Rome in order that he might enjoy the view. 
Was that normal consumption? (d) The farmers of 
Kansas in 1896 burned corn instead of coal, because corn 
was cheaper. Was that normal consumption? (e) A 
man who is isolated by a Dakota blizzard burns Chippen- 
dale chairs to keep from freezing to death. Is that de- 
structive consumption ? 

3. Suppose a man receives an income of $1,000,000.00 a year. 

Does he indulge in luxury if he spends it all on his 
private personal wants? Why? What principle of 
luxury do you apply? Is an automobile a luxury to the 
President of the United States? Is it to you? 

4. Suppose a man with an income of $600.00 per year spends 

normally $270.00 for food ; $110.00 for rent ; $75.00 for 
clothes ; $35.00 for fuel and light ; and $110.00 on amuse- 
ments, etc. How much would he spend on each of the 
above named items if his income were increased to 
$1,200? (See text, p. 119.) 

5. Suppose an individual estimates his present wants at 48, 

38, 32, 24, 20. 12, 4, 31, 21, 14 and the present value of 
future wants is 44, 40, 28, 2, 7, 8, 4, 3, 2, 1. Suppose each 
want can be satisfied by $10.00 and he has $100.00 to 
spend, how much will he save? 

6. "The human race could increase its welfare almost as much 

by a better ordering of its consumption as by an in- 
creased production of wealth and this without any real 
retrenchment in consumption." Enumerate ways in 
which this may be done. 

7. What per cent of the family income is produced in the 

home? Ordinarily spent by the housewife? What econ- 
omies could be reasonably practiced in the use of fuel? 
Food? Clothing? Living quarters (rent)? Personal 
services? 



Consumption 25 

8. During war time what kinds of saving are increased? What 

kinds of waste? Does hoarding of goods usually con- 
stitute social saving? Is it the most effective method of 
social saving? 

9. "The luxury of the great is the comfort of the little." 

"Prodigals ruin themselves, but they enrich the state." 
"It is the superfluity of the rich that makes the bread of 
the poor." "Tell us about Mondor. Mondor forever! 
He is the benefactor of the workman. It is true he revels 
in dissipation ; he splashes the passer-by ; his own dignity 
and that of human nature is lowered; but what of that? 
He causes money to circulate. Is not money made round 
that it may roll?" Comment critically. 

READING REFERENCES. 
Definitions. 

1. Kinds of Consumption. 

Patten, The Consumption of Wealth and Dynamic Eco 

nomics, pp. 
Blackmar, Economics, 269-74. 
Bullock, Introd. to Econ., 87-8; 98-9. 
Davenport, Outlines of Econ. Theory, pp. 
Fetter, Prin. of Econ., 381-85. 

2. Diminishing Utility, Total and Marginal Utility. 

Bullock, Introd. to Econ., 89-91, 95-7. 
Bullock, Selected Readings in Econ., 245-52. 
Gide, Prin. of Pol. Econ., 655-52. 
Johnson, Introd. to Econ., 23-9. 
Marshall, Prin. Econ., 92-6. 
Marshall, Econ. of Industry, 61-5. 
Taussig, Prin. Econ., I, 120-37. 
Seager, Introduction to Econ., 63-4. 
Seligman, Prin. of Econ., 173-79. 

3. Natural and Economic Order of Consumption. 

Bullock, Introd. to Econ., 91-5. 



26 Elementary Economics Manual 

4. Consumption and Saving. 

Bullock, Introd. to Econ., 107-9. 

5. Luxury. 

Blackmar, Econ., 280. 

Bullock, Introd. to Econ., 102-5. 

Fetter, Prin. Econ., 385-91. 

Gide, Prin. Pol. Econ., 673-77. 

Nearing & Watson, Text Book of Econ., 43-59. 

Seager, Introd. to Econ., 72-6. 

Seligman, Prin. of Econ., 676-80. 

6. Laws bearing on Consumption. 

Seager, Introd. to Econ., 62-71, 76-9. 

Patten, Consumption. Ann. Amer. Acad, of Pol. & Social 

Sci., Vol. 
Clark, Philosophy of Wealth, pp. 

7. Saving and Luxury. 

Fetter, Prin. of Econ., 167-169. 
Davenport, Econ. of Enterprise, 306-310. 
Blackmar, Economics, Chapter VI. 



CHAPTER IX. 

PRODUCTION, 

Definitions. 

I. PRODUCTION OF SOCIAL WEALTH means the crea- 
tion of utilities by the application of man's mental and 
physical powers to the materials of nature. Production 
usually results in the creation of one or more of (a) time, 
(b) place, (c) form, (d) possession utilities. 

II. PRODUCTION GOODS are goods used in the creation of 
utilities embodied in social wealth. They are of two 
kinds, natural resources and capital goods. 

III. NATURAL RESOURCES are those gifts of nature which 

directly or indirectly aid in satisfying the wants of man. 
Like other goods they may be used for the production of 
wealth or for purposes of consumption. 

IV. CAPITAL GOODS are those products of past industry 

used in the further production of social wealth. A stock 
or aggregation of capital goods is referred to as Social 
Capital. 

V. LABOR is man's effort in production and includes all 
bodily or mental effort, having for its primary purpose 
the creation of economic goods rather than the pleasure 
derived from the exertion itself. 

Quiz Questions. 

1. What is production of wealth? Give examples. 

2. Give examples of the addition to goods of place utilities; 

time utilities; form utilities; and possession utilities. 

3. Does the advertiser produce social wealth? How? 

4. Is it possible to produce immaterial goods ? 

5. Does a banker produce wealth ? Explain. 

6. Is a merchant a producer? If so, in what way? 

27 



28 Elementary Economics Manual 

7. Name the factors of production. 

8. Define and illustrate each. 

9. Contrast fixed with circulating capital. 

10. Is money circulating capital? 

11. Is an aeroplane circulating capital? 

12. Is sand in a sand pit circulating capital? 

13. What is the chief function of the capitalist? The landlord? 

14. Contrast social saving with individual saving. 

15. What is disutility? Marginal disutility? Is initial dis- 

utility greater than marginal disutility? Contrast dis- 
utility with the business man's conception of cost. 

16. What is abstinence? Contrast disutility with abstinence? 

17. Contrast cost of production with expense of production. 

18. What functions does the entrepreneur perform? 

19. Is a man who owns and runs a shoe-shining parlor an entre- 

preneur ? 

20. What do you understand by division of labor? 

21. Enumerate (a) advantages and (b) disadvantages of divi- 

sion of labor. 

22. Explain what is meant by a territorial division of labor. 

Problems. 

1. (a) Is the work of the newsboy production of social 

wealth? In what way? (b) Is the work of a teacher 
economic production? (c) Is the effort of a varsity 
foot-ball player economic production? (d) Suppose he 
enjoys the game, but is given his board for playing on 
the team, would it then be economic production? 

2. (a) Is it possible for a man to be engaged in production 

without helping to create social wealth? (b) How? 
(c) Is the waiter in a restaurant a producer? (d) If so, 
what does he produce? (e) What does the lumber 
dealer produce? (f) What does a barber produce? 

3. A merchant is never really a producer since he either sells 

goods for more than they are worth or buys them for less 
than they are worth and thereby makes a profit. Draw 
a diagram showing the relative utility of a pair of gloves 



\ 



Production 29 

and a dollar bill" to the merchant and to the buyer and 
show how both may gain by the exchange. 

4. (a) Suppose a man saves one hundred dollars per year and 

hides away five twenty dollar bills annually in a crock in 
the pantry until he accumulates a hoard of $2,000.00. Is 
that social saving? (b) Suppose a man saves a hundred 
dollars and puts it into improvements on his farm, better 
barns, better machines, etc. Is that social saving? Why? 
(c) Suppose a prairie farmer saves nothing at all but 
each year makes two trees grow where but one grew be- 
fore. Is that social saving? 

5. (a) An Indian makes a canoe by burning out a hollow log. 

What factors are combined in the making of a factory 
made canoe? 

6. (a) In Bulgaria one often sees a woman and a dog pulling 

a cart. Is the effort of the woman labor? Is the effort 
of the dog? Why? (b) A certain college student 
known in college circles as a "fusser" was hired to enter- 
tain the young women guests at a fashionable summer 
resort. Is his labor effort? Why? (c) Suppose an 
owner of an automobile spends his days in driving his 
machine whenever his caprice dictates. Is his effort 
labor? Why? (d) Suppose he hires a chauffeur to run 
the machine over the same stretch. Is the effort of the 
chauffeur labor? Why? 

7. The savings of the United States are estimated at $2,000,000 

per day. In what form are these savings found and 
where are they? 

8. The Socialists say "The Laborer is after all the only real 

producer, all the rest are parasites and live off the 
product of his labor." What concept of labor does this 
imply? What concept of production? 



CHAPTER X. 

CORPORATIONS. 
Definitions. 

V. A CORPORATION is an artificial person with limited 
liability for debt created by law for some purpose. 

II. THE ENTREPENEUR means the person or group of 
persons who direct and assume the risks of a business. 

III. THE CAPITAL VALUE OF A CORPORATION means 
the aggregate market value of its stocks and bonds at a 
given time. 

IV. CAPITALIZATION means the aggregate face value of its 

stocks. 

V. PHYSICAL VALUE is the aggregate value of all the 
concrete material assets of a business. 

VI. OVERCAPITALIZATION exists where the total face 
value of all the stocks and bonds of a corporation are in 
excess of the physical value of the plant. 

VII. WATERED STOCK consists of the excess of the par 
value of stocks actually issued over the total amount in- 
vested by the stockholders. 

Quiz Questions. 

1. Name the most important types of business units. 

2. What is the most important characteristic of a corporation? 

3. Enumerate the weaknesses of partnership. 

4. Name the chief elements of a corporation charter. 

5. Who grants the corporation charter? 

6. Why has New Jersey become the home of so many corpora- 

tions ? 

7. What effect has the rule of interstate-comity had upon the 

actions of corporations in various states? 

30 



Corporations 31 

8. What is meant by the paid up capital stock of a corpora- 

tion? 

9. What is cumulative preferred stock? 

10. What is the difference between bonds and stocks? 

11. What is the income from bonds called? 

12. What is the income from stocks called? 

13. What is watered stock? 

14. How may stock be used to distribute surplus profits ? 

15. Why should the capital stock of railroads correspond to the 

real investment? 

16. What objections are there to over-capitalization from the 

standpoint of the investor? 

17. What are the officials who manage a corporation called? 

18. What are the chief advantages of a corporation as a form 

of business organization from the point of view of the 
business man? Why is individual ownership less desir- 
able? 

19. How may a corporation be managed so as to be injurious 

to society? 

20. Is a corporation always a trust? Contrast a trust certifi- 

cate with a stock certificate. 

21. What is a trust? How is it governed? How owned? 

22. What is a holding company? 

23. Why has the holding company lent itself to monopoly form- 

ation in the past ? 

24. Name the chief motives that have led to corporate com- 

binations. 

25. What was the purpose of the Sherman Anti-trust Act? 

26. Has it been successful? 

27. Is publicity a complete solution of the problem? 

28. What three kinds of publicity are there that may be re- 

quired ? 

29. What kinds are most desirable? 

30. What would be the effect of a law requiring a federal li- 

cense from all corporations engaged in inter-state com- 
merce ? 



32 Elementary Economics Manual 

Problems. 

1. Suppose the company whose balance sheet is given on page 

137* would buy (a) $2,000.00 worth of new machinery, 
paying in cash; (b) declare a dividend amounting to 
$4,000.00 of its outstanding indebtedness. How would 
its balance sheet then read? 

2. (a) Suppose A has property worth $100,000.00 and sup- 

pose he invests $25,000.00 in a one-third interest in a 
partnership with B and C. After a year the partnership 
goes into bankruptcy with $20,000.00 assets and $50,000.00 
liabilities. To what extent is A liable for the debts of 
the firm? To what extent is A liable for the firm if the 
other partners have as much property as he? What is 
the minimum amount of the deficiency which he must 
necessarily pay? (b) Suppose A, instead of investing in 
a partnership, buys ten thousand dollars' worth of stock 
in a corporation capitalized at $30,000.00 and suppose 
the corporation fails with liabilities of $10,000.00 in ex- 
cess of assets, to what extent is A liable for the debts of 
the corporation? 

3. Suppose a man buys a piece of land for fifty dollars and 

he pays one hundred and fifty dollars to some laborers 
for digging a hole in the ground. Should he be allowed 
to organize a company capitalized at one million dollars 
to own and operate this so-called mine? What is the 
difference between the capitalization and actual capital 
in the enterprise ? Suppose a fortune teller has informed 
him that there is gold in his land if he digs down deep 
enough, would that alter the case? 

4. Suppose Mr. A, owning $50,000.00 worth of stock in a cor- 

poration capitalized at $30,000.00, should die. What 
rights would his heirs have in the management of the 
concern? (b) Suppose he owns a one-third interest in 
a partnership with $30,000.00 capital, what rights would 
his heirs have in the firm after his death ? 

5. Enumerate ten of the most powerful holding companies in 

the United States today. 



•Ely's Outlines of Economics. 



Corporations 33 

6. If interest rates are 5 per cent., and a corporation has, in 

hundred dollar shares, $50,000 in common stock, $40,000 
in 6 per cent, equally participating, preferred stock, and 
$30,000 in 5 per cent, bonds, and the net income is ex- 
pected to average $4,900 annually, what is the common 
stock worth? Preferred stock? Bonds? If the net in- 
come increases to $5,900, what is each worth ? If it falls 
to and remains at $1,900, what will each be worth? 

7. Construct a balance sheet, using the following items : 

Income reinvested $70,000 

Raw materials on hand 40,000 

Cash on hand 15,000 

Accounts receivable 10,000 

Common stock 50,000 

Seven per cent, preferred stock 50,000 

Funded debt (bonds) 100,000 

Land and buildings 200,000 

Profits 55,000 

Accounts payable 10,000 

Machinery 50,000 

Finished goods on hand 20,000 

(b) Recast the balance sheet after the following transactions 
have been made : 

1. Sells $15,000 worth of finished goods for cash. 

2. Buys on account $10,000 worth of raw materials. 

3. Pays out in cash 5 per cent, interest on the funded debt. 

8. The capital stock of a company XYZ, organized Jan. 1, 

1910, is $100,000, representing 1,000 shares of 7 per cent, 
cumulative preferred stock, par value $100, and 1,000 
shares of common stock, par value $100. This company 
also has $500,000 of 5 per cent, gold bonds outstandidng, 
issued Jan. 2, 1910. On Jan. 1, 1911, the profits on the 
books of this company were $30,000 and on Jan. 1, 1912, 
the profits were $40,000. Make out a statement showing 
the amount of interest and dividends paid on each share 
of stock and each bond in 1911 and 1912. 

9. Explain each of the "bold" terms in the following: The 

XYZ Gold Mining Co., organized on Jan. 1, 1912, has 



34 Elementary Economics Manual 

sold 100,000 shares of common stock, par value one dollar, 
and has paid for its mining claims by transferring 100,000 
shares of its 6 per cent, cumulative preferred stock, par 
value one dollar each. In order to carry on its develop- 
ment work it has, on June 1, 1913, floated 500 6 per cent. 
gold bonds of $1,000 each. On July 1, 1913, the directors 
passed the semi-annual dividend, but announced that 
they expected to have $60,000 on hand as undivided 
profits on June 1, 1914. 
10. Assuming that interest on the bonds in the above company 
has been paid on Jan. 1, 1913, but that none of the other 
security holders has received anything since the organiza- 
tion of the company, how can an undivided surplus of 
$80,000 be divided on Jan. 1, 1914? What part will go 
to the owners of the preferred stock, what share will go 
to the owners of the common stock, and how much to the 
bond holders? 

READING REFERENCES. 

Nature and Types of Business Organizations. 

Seager, Introd. to Econ., 144, 145, 149. 

Marshall, Econ. of Industry, Chap. 12. 

Haney, Business Organization and Combination, Chap. 2. 

Bullock, Introduction to Econ., 149. 

The Growth and Importance of Corporate and Large Scale 
Production in Modern Business. 

Ely, Monopolies and Trusts, Chap. 5. 
Marshall, Prin. of Econ., 278-90. 
Hobson, Evolution of Capitalism, Chap. 4. 
Jenks, The Trust Problem, Chaps. 1 and 2. 
Marshall, Econ. of Industry, 8-11. 
Seligman, Prin. of Econ., Chap. 22. 
Bullock, Introd. to Econ., 157-178. 

Organization and Management of Corporations and Combina- 
tions. 

Greene, Corporation Finance, Chap. 2. 



Corporations 35 

Marshall, Prin. of Econ., 291-313. 

Haney, Business Organization, Chaps. 6, 7, and Book 3. 

Bullock, Introd. to Econ., 150-57. 

Pools and Trusts. 

Jenks, The Trust Problem, Chap. 7. 
Seager, Introd. to Econ., Chap. 25. 
Meade, Trust Finance, Chap. 7. 
Taussig, Prin. of Econ., Chap. 63. 
Hanet, Business Organization, Chaps. 9, 10. 
Bullock, Introd. to Econ., 316 ff. 

The Function of the Promoter in Organization of Trusts. 

Jenks, The Trust Problem, Ch. 6. 

Seligman, Prin. of Econ., 267-74. 

Meade, Trust Finance, Chaps. 16-18. 

Ely, Monopolies and Trusts, 270 fr\ 

Meade, Trust Finance, 12, 13. 

Greene, Corporation Finance, Chaps. 1, 3, 4. 

Meade, Corporation Finance, Chaps. 2, 4, 10-13. 

Social Aspects of Growth of Corporate Forms. 

Jenks, The Trust Problem, Chaps. 11, 13. 
Seager, Introd. to Econ., 147 fP. 

Anti- Trust Laws and Control of Corporate Organizations. 

Jenks, The Trust Problem, Chaps. 11, 13. 
Ely, Monopolies and Trusts, Chap. 6. 
Seager, Introd. to Econ., 498 ff. 
Clark, Control of Trusts, Chaps. 3, 4, 5, 8. 
Meade, Trust Finance, Chaps. 19, 20. 
Haney, Business Organization, Book 4. 



CHAPTER XI. 

VALUE. 
Definitions. 

I. USE VALUE is the importance attached by an indi- 
vidual to a unit of a commodity for the direct satis- 
faction of his wants, and is measured by its margi- 
nal utility. 

II. SUBJECTIVE EXCHANGE VALUE is the importance 
ascribed by an individual to a commodity or a 
service for purposes of exchange and is measured 
the minimum he will accept for a unit or the maxi- 
mum he will offer for an additional unit of a good. 

III. SUBJECTIVE VALUE is based upon both use value and 

subjective exchange value and means the entire 
importance of a unit of a commodity or a service. 

IV. EXCHANGE OR MARKET VALUE of a commodity or 

■service, is not expressed in money but means the 

quantity of other goods that can be obtained for it. 

V. PRICE is exchange value expressed in terms of money. 

VI. MARKET is the area within which the price determin- 
ing forces for a unit of a commodity operate. 

VII. MARKET SUPPLY is the amount of goods offered for 

sale on a given market at a given time and price. 

VIII. DEMAND means the amount of goods purchasers are 

ready to buy in a given market at a given time 

and price. 

IX. NORMAL VALUE of a good at a given time means value 
fixed by the trend of market values over a long 
time period. 

X. DEMAND is said to be elastic when a small change in 
price results in a large change in the quantity of 
goods bought. 

36 



Value 37 

XI. DEMAND IS INELASTIC when a large change in price 
has but little effect on the quantity of goods pur- 
chased. 

XII. POTENTIAL SUPPLY is the quantity of goods which 
in a given period of time would be brought to 
market should the prices go up. 

Quiz Questions. 

1. What is meant by (a) EXCHANGE VALUE of a good? 

(b) The SUBJECTIVE VALUE of a thing? (c) SUB- 
JECTIVE EXCHANGE value? 

2. How can one measure the value of a dollar? Does it have 

exchange value? Subjective value? 

3. What kind of value is spoken of when a man says: ''This 

is worth more to me than I can sell it for?" State the 
technical economic name for this kind of value. 

4. Contrast EXCHANGE VALUE with PRICE. 

5. Name three ways by which MARKET PRICE may be estab- 

lished. 

6. Which method prevails today? 

7. What is a MARKET? 

8. Name some goods for which there is a world market. 

Local market. 

9. What are some of the institutions essential to the existence 

of free COMPETITION? 

10. Define economic goods. Are free goods objects of demand 

and supply ? Is there a market for free goods ? 

11. Why is it an inadequate explanation to say that SUPPLY 

and DEMAND determine values? What is supply? What 
is demand? 

12. Contrast DESIRE for a thing with EFFECTIVE DEMAND 

for it. 

13. May advertising sometimes change desire into effective 

demand? How? Enumerate other ways of changing 
desire into effective demand. 

14. Why does lowering the price of articles in a sale tend to 

increase the effective demand for them? 



38 Elementary Economics Manual 

15. Suppose the price of wheat goes up in the Chicago markets, 

what effect is it likely to have on the PRICE of corn? 
The price of rye ? 

16. If the price of apples increases what effect will it have on 

the demand for apples? "Will it have any appreciable 
effect on the desire for apples ? 

17. Explain what is meant by ELASTICITY of DEMAND. 

Draw curves illustrating elastic and inelastic demand. 

18. For what kind of goods is demand least elastic? Why? 

19. What effect does the existence of substitutes have upon 

the elasticity of the demand for a commodity? What 
effect does a person's MARGIN OF CONSUMPTION 
have on his demand for an article ? 

20. What effect does improvement in the general well-being of 

a people have upon the ELASTICITY OF DEMAND for 
goods? 

21. Of what does the CONSUMER'S SURPLUS consist? 

Money ? Goods ? Satisfactions ? 

22. Is it possible that there may be a CONSUMER'S DEFICIT? 

How? 

23. What is the meaning of POTENTIAL SUPPLY? 

24. Through what agencies does SUPPLY and DEMAND de- 

termine prices? 

25. What is meant by the PRODUCER'S or SELLER'S SUR- 

PLUS? 

26. What is competition? Contrast RIVALRY in sports with 

COMPETITION. 

27. What is meant by FREEDOM OF CONTRACT? Can there 

be COMPETITION without FREEDOM OF CONTRACT? 

Problems. 

1. (a) The demand for violins is as follows : one if the price 
is $5,000; two if the price is $4,800; three at $4,500; five 
at $3,000; seven at $2,800; nine at $2,000; eleven at 
$1,000. The supply, i. e., the number for sale, is as fol- 
lows : one at $1,000, if no more can be obtained ; two at 
$2,000; three at $2,800; four at $3,800; five at $6,000. 
Plot the demand and supply curves and establish the 



Value 39 

price, (b) Suppose only four such violins are in exist- 
ence, all in the hands of one owner, and suppose the 
owner will sell at the best price he can get, what will the 
price be? 

2. (a) If supply and demand for a commodity increased at 

the same rate, what effect would it have upon the value ? 
\/ (b) "After all, it is the great law of supply and demand 
that finally determines what an article is worth." Criti- 
cise statement, (c) If the number of persons demanding 
a commodity should double, would prices double? "Why? 
Explain. 

3. (a) Suppose the number of foot ball tickets offered for 

sale in Madison for a Thanksgiving game is 30,000. Sup- 
pose there are 30,000 people in Madison. Each person 
wants a ticket and has $5.00 in his pocket. What will 
be the value of the ticket? Can you estimate approxim- 
ately what the price will be ? Why ? Apply the same rea- 
soning to the value of air. (b) Name four products whose 
supply is relatively fixed and for which the demand varies. 
(c) Name four products whose supply is relatively 
variable, and for which the demand varies, (d) Name 
four products whose supply varies greatly from time to 
time, for which the demand is relatively staple, (e) Plot 
a demand curve for foot ball tickets (30,000) as you 
think it is. 

4. As a result of an explosion in a mine a miner and his 

donkey are imprisoned in a coal mine. The man has two 
dinner pails full of food, each of which is sufficient to 
keep either the man or the donkey alive for five days. 
Suppose the man knows it will take five days and no 
longer for the rescuing party to sink a new shaft to him, 
how much would he value one of the pails of food? 
(b) Crusoe stranded on his island has five sacks of corn. 
One sack is sufficient to maintain his life until the next 
harvest, one sack is needed for seed, the third sack is 
needed for an emergency, in case of failure of harvest; 
the fourth sack he uses to feed his poultry and the fifth 



40 Elementary Economics Manual 

sack to feed his parrot. What is the value of a sack of 
corn to Crusoe? 

5. Will a ten per cent, increase in the supply of wheat have 

greater or less effect on the price of wheat than a ten 
per cent, increase in supply of silks has on the price of 
silk hats? Why? Of diamonds? 

6. If two commodities have the same price, ten cents, does 

that imply that a buyer's initial utility obtained from 
consuming one unit of each is the same? Why? Does it 
mean that the total utility derived from consuming a 
series of units, say ten of each, would be the same ? Why ? 
Does it necessarily mean that the marginal utility of 
each is the same to a person purchasing ten units of 
each commodity? Why? 

7. Discuss the supply and demand schedule for gasoline. Is 

the price necessarily high because the supply is short, 
or because the demand has increased? 



CHAPTER XII. 

VALUE AND PRICE. 
Quiz Questions. 

i. Why do men engage in business? What determines the 
supply of any commodity? 

2. What is the normal value towards which prices constantly 

gravitate? Are prices and normal values of a series of 
commodities ever identical? 

3. May prices ever go below this level? Cite an illustration. 

May they go above? 

4. Suppose the price of an article remains for some time above 

its normal value, what happens ? 

5. Is all the wheat in the United States produced at the same 

expense per bushel? 

6. Is the price of wheat more largely determined by the ex- 

pense of producing wheat on the best land on which it 
pays to raise wheat, or by the expense on the poorest land 
on which wheat is raised? 

7. Name some industries where the expense of production per 

unit decreases with the increase of the output. Name 
some goods that are subject to increasing costs. Name 
some goods subject to decreasing costs. 

8. In what classes of goods is the surplus of bargaining great- 

est? Is the surplus of bargaining greatest in competitive 
or non-competitive enterprises ? 

9. What determines the normal price of non-reproducible 

goods? Cite an example. 

10. Why do retail prices not always respond to fluctuations in 

wholesale prices? Do they in the long run? Do they 
respond more promptly upwards or downwards? 

11. Name some commodities the values of which are largely deter- 

mined by public authority. 

12. Is the number of goods the values of which are fixed by 

public authority, increasing or decreasing? 

41 



42 Elementary Economics Manual 

13. What is meant by imputed value? What examples are 

there of imputed values? 

14. A productive good like a plow satisfies directly no human 

want. In what way can it be said that the marginal 
utility determines its value? 

15. What is the socialistic theory of value? Who is considered 

the father of scientific socialism? 

16. What is meant by marginal expense? 

17. Cite examples of goods having joint costs. 

18. Does a Persian rug have a great value because it takes 

much labor to make it or is the labor valuable because 
the rug will sell for so much money? Is the price of 
wheat high because it takes expensive wheat land to 
grow it or does the wheat have greater value because 
the wheat price is high ? 

19. Formulate a principle explaining the value of a producer's 

good. 

20. Is it possible for a thing to be scarce and still not have 

any value? 

Problems. 

1. In what way does price influence the supply of wheat 

in thirty days? In two years? (b) In what way does 
price affect the supply of manufactured articles in 
thirty days? In three years? (c) In what way does 
potential supply affect the price on a given day? Cite 
illustration, (d) Will an increase in potential supply 
affect price directly or through an increase in visible 
supply ? 

2. Suppose as a result of a discovery in agriculture the supply 

of wheat could be increased ten per cent next year, what 
effect would it have upon the price? Would it be 
doubled or halved? Would it have some other result? 
suppose the supply should be increased by one-third or 
one-fourth of this year's crop, would it have a propor- 
tionate effect on the prices, i. e., would there be 33 1/3 
per cent, or 25 per cent, increase or decrease in price? 
Why? 



Value and Price 43 

3. A Madison man pays five dollars per cwt. for five hundred 

pounds of sugar for the use of his family house during 
the year. If the sugar supply were suddenly cut off this 
same man might have been willing to pay fifty dollars 
per cwt. for one hundred pounds of sugar. The con- 
sumer's surplus of this man is then the difference be- 
tween $50 and $5 or $45, and this multiplied by five, the 
number of cwt. bought, yields $225, the total surplus. 
Criticise. 

4. Two clam fishers each find a pearl in the Yahara. The 

two pearls are exactly alike in size and quality^ They 
advertise that both pearls are for sale on a certain day, 
and five jewelers appear. Jeweler A makes up his mind 
that the value of either of the pearls is $75.00; Jeweler 
B, $50.00 ; Jeweler C, $35.00 ; Jeweler D, $25.00 ; and E, 
$20.00. Both pearls will be sold at the best prices obtain- 
able and each jeweler is ready to buy both pearls at the 
best prices named. At what price will the pearls prob- 
ably be sold? (b) Suppose a swindler advertises that 
fifty pine tree shillings have been discovered in a cellar 
in Maine. Suppose the imitations are so perfect that the 
greatest critics believe them to be genuine. Suppose 
the market price of a real pine tree shilling is $150.00 
or more, what are the newly discovered counterfeits 
worth? What effect will the "discovery" have on the 
old genuine pine tree shillings ? 
5. A boy has caught twenty one-pound bass. He would, if he 
had an opportunity, exchange all of them for a bicycle ; 
ten for a dog ; five for roller skates ; two for a fish line ; 
two for a rabbit ; six for two pounds of candy ; three for 
a flash light ; seven for a gun. The market prices are : 
dog, 50 cents ; rabbits, 75 cents each ; fish line, 75 cents ; 
gun, $1.00; flash light, 75 cents; candy, 50 cents per 
pound; roller ska,tes, $1.50 per pair; fish, 25 cents per 
pound. What will he buy and sell and how much will 
he save? 
6. In a certain market there is one horse for sale that meets 
all the requirements of five buyers. Buyer "1" has de- 



44 Elementary Economics Manual 

cided in his mind that $350.00 is the maximum amount he 
can afford to pay for such a horse. Buyer "2," $200.00; 
buyer "3,"' $250.00; buyer "4," $200.00; buyer "5," 
$150.00, and buyer "6," $100.00. At what price will the 
horse probably sell? (a) Suppose there are three horses 
on the above market, what will be the market price? 
Explain, (b) Suppose the owner of one of the horses will 
sell at as much over $200.00 as he can get, seller "2" 
will sell at as much over $250.00 as he can get and seller 
"3" will sell at as much over $300.00 as he can get; 
what will be the market price and how many horses will 
change hands? 

7. The city of Chicago can use the following quantities of 
eggs at the indicated prices : 10,000 crates at 50 cents 
per dozen; 25,000 crates at 40 cents per dozen; 50,000 
at 30 cents; 75,000 at 25 cents; 100,000 at 20 cents; 
125,000 at 18 cents; 150,000 at 17 cents; 200,000 at 15 
cents ; 250,000 at 13 cents ; 300,000 at 10 cents. The ship- 
ments of eggs (10,000 crate lots) into Chicago for each 
month is as follows : Jan. 10 — 25 ; March, 40 ; April, 
200 ; May, 130 ; June, 100 ; July, 75 ; Aug., 50 ; September, 
40; October, 30; November, 20; and December, 15. (a) 
Plot the supply curve and the price curve for the year. 
(b) If 20,000 cases each month are bought for storage in 
April, May and June and sold in December, January and 
February, what effect will it have on the price curve 
under the above assumption? 



CHAPTER XIII. 

MONOPOLY. 

Definitions. 

I. MONOPOLY means that substantial unity of action on the 
part of one or more persons engaged in some kind of 
business which gives exclusive control, more particularly, 
although not solely, with respect to price. 

II. A TRUST (in popular usage) is an industrial combina- 
tion other than a legal or natural monopoly, which at- 
tempts partially or wholly to eliminate competition in 
any of its fields of action. A trust may be created by 
means of "gentlemen agreements," community of in- 
terest secured by interholding of stock or interlocking 
of directorates, contractual agreements e. g., pools, di- 
vision of territory, voting trusts etc., by holding com- 
panies, or by actual integration of general business 
through purchase and consolidation. 

III. CONTROL. 

1. Federal. The Interstate Commerce Act, dated Feb. 4, 
1887, an act for the regulation of commerce, — fol- 
lowed by the bill of March 2, 1889, and the bill of 
Feb. 10, 1891, Feb. 8, 1895, June 29, 1906. 

The Sherman Anti-trust Act begins with the bill of 
1889. 

Art. 1. Makes it applicable to arrangements, contracts, 
agreements, trusts or combinations between persons 
or corporations with a view to prevent free compe- 
tition in importation, transportation, or sale of arti- 
cles imported into the U. S., or in the production of, 
or sale of, domestic raw material transported from 
one state or territory to another, and all arrange- 
ments, contracts, agreements, trusts or combinations 
designed to advance the cost to the consumer of any 
such articles. 

45 



46 Elementary Economics Manual 

Sec. 2. Any person or corporation injured may sue for 
and recover the full sum paid by him for any goods, 
wares included in or advanced in price by a combi- 
nation. 

Sec. 3. Penalty for violation not more than $10,000, or 
imprisonment of not more than 5 years, or both. 

The bill provides in section 2 for a civil remedy; in 
section 3, for a criminal remedy for violations. 

Analysis of section 1 : 1. It applies to attempts to 
prevent or diminish competition in importation, 
transportation or sale of the imported articles. 

2. In the manufacture or production or sale of articles 
at home which compete with imported articles. 

3. Or articles which are transported from one state or 
territory into another. 

4. All combinations designed to advance cost to the con- 
sumer of any articles mentioned. 

Constitutional foundation for Sherman Act found in 
paragraph 3, section 8, art. 1 of the constitution: 
Congress has power to regulate commerce with 
foreign nations and among the several states and with 
the Indian tribes. 

Sec. 1. Did not propose to regulate any transaction ex- 
cept what might result from combinations between a 
plurality of persons or corporations. 

Sec. 2. Proposed to enable any person injured by a for- 
bidden transaction to recover the amount paid. 

This original bill was referred to the Finance Com- 
mittee and reported back Feb. 27, 1890. The Finance 
Committee substitute attempted to strengthen the 
constitutional basis for the bill. 

IV. THE NEW ANTI-TRUST LAW. 

An act to supplement existing laws against unlawful 
restraints and monopolies and for other purposes. 

Sec. 1. Enumerates former anti-trust laws, defines 
"commerce" so as to include all interstate commerce 
except commerce with the Philippine Islands and de- 
fines "persons" so as to include corporations and 



Monopoly 47 

associations as well as natural persons. 
Sec. 2. Forbids discriminations in price between differ- 
ent purchasers where the effect is to tend to create a 
monopoly, provided the discrimination is not made in 
good faith to meet competition. 
Sec. 3. Forbids leases and conditional sales, where the 
lessee or purchaser binds himself not to buy or deal 
in goods of competitors and where the effect of such 
lease or sale is to tend to create a monopoly. 
Sec. 4. Gives a person injured by anyone acting in vio- 
lation of the anti-trust laws, the right to sue in any 
U. S. district court regardless of the amount in con- 
troversy and to recover costs and three-fold damages. 
Sec. 5. Establishes that final judgment or decree in a 
suit in equity brought by the United States against 
a defendant in an anti-trust case shall be conclusive 
evidence as to the same facts and questions of law in ' 
favor of any other party bringing action under the 
anti-trust law. 
Sec. 6. Exempts labor organizations and agricultural 
or horticultural associations from the jurisdiction 
of the anti-trust laws, provided they are lawfullly 
carrying out their legitimate objects. 
Sec. 7. Forbids corporations directly or indirectly to 
acquire or hold stocks in one or more corporations 
where the effect is to lessen competition between cor- 
porations whose stock is acquired or to restrain com- 
merce in any section, or community. 
Sec. 8. Forbids interlocking directorates between two 
or more banks either of which has deposits, capital, 
surplus and undivided profits aggregating more than 
five million dollars or between other corporations any 
one of which has a capital, surplus and undivided 
profits of one million dollars. This provision takes 
effect two years after the date of approval of the act. 
Sec. 9. Forbids and provides penalties for embezzle- 
ment or misapplication of funds or credits of common 
carriers by officers or directors of firm or corporation. 
Sec. 10. Attempts to prevent manipulation by directors 



3 Elementary Economics Manual 

or officers through construction or repair companies 
by forbidding dealings by common carriers in secur- 
ities or articles of commerce and by providing for 
competitive bidding on all supplies and construction 
work, placing the control over such bidding in the 
hands of the Inter-State Commerce Commission. 

Sec. 11. Gives the Inter-State Commerce Commission 
power to enforce compliance with sections 2, 3, 7 and 
8, gives the Federal Reserve Board power to enforce 
the laws applicable to banks and trust companies, 
and the Federal Trade Commission power to enforce 
laws applicable to unfair trade practices. 

Sees. 12, 13, 14 and 15. Provide penalties for viola- 
tion of penal provisions and prescribe the judicial 
procedure and machinery for the enforcement of the 
laws. 

Sees. 16, 17, 18, 19 and 20. Regulate the use of injunc- 
tions in trust cases— restricting the use of injunctions 
by United States courts in cases between employers 
and employes, and expressly forbidding the use of 
the injunction in case of lawful strikes, boycotts or 
picketing. 

Sees. 21, 22, 23 and 24. Provide penalties for con- 
tempt and for appeals and legal proceedure in con- 
tempt cases. 

Sec. 26. Provides that, if any part of the act is de- 
clared invalid by competent courts, it shall not im- 
pair the validity of the remainder of the act. 

V. THE NEW TRADE COMMISSION LAW. 
Definition of unfair trade. 

"That unfair methods of competition in (interstate) 
commerce are hereby declared unlawful." 

The remainder of the law is devoted to details of organi- 
zation, proceedure, methods by which rulings may be 
appealed to courts and penalties to be imposed on 
those guilty of "unfair competition." 

The Commission is composed of seven commissioners 
appointed by the president and, in addition to its 



Monopoly 49 

duties provided in the law, it takes over the powers 
and clerical forces of the Bureau of Corporations and 
of the Commissioner of corporations, both of which 
are by this act abolished. 

Quiz Questions. 

1. Do Supply and Demand help to establish price in case of a 

monopoly? Explain fully. Contrast with competition. 

2. Define Competition. Define Monopoly. Contrast compe- 

titive Avith monopolistic condition. 

3. Are all monopolies trusts? Are all trusts monopolies? 

4. Is land ownership monopoly? "Why? Contrast the modern 

idea of monopoly with the old English legal concept. 

5. Contrast public with private monopolies. 

6. Give some illustrations of quasi-public monopolies. 

7. What is meant by social monopolies? 

8. Cite illustrations of social monopolies based on public 

favoritism. 

9. Explain and illustrate natural monopolies. 

10. What principle underlies the classification, (a) local, (b) 

national, (c) international monopolies? 

11. What is the best classification of monopolies? Upon what 

principles is it based? Classify monopolies according to 
causes of monopoly power. 

12. Is a monopoly price necessarily a high price? 

13. What is meant by the point of highest net return? 

14. Can the Standard Oil Company charge any price it pleases 

for oil? Why? 

15. Will the monopoly price for an article be higher in this 

country than in Japan? Why? State principles in- 
volved. 

16. What is a class price? In what kinds of commodities do 

you find class prices? May there be a class price in a 
competitive industry ? How does it differ from Monopoly 
Class Price? 

17. May prices be raised in any other way than by limitation 

of the supply? 



50 



Elementary Economics Manual 



18. What limits supply under competition in the case of a 

freely reproducible good? In case of goods produced 
at increasing costs? 

19. What limits would there be to supply if the cost of pro- 

duction were zero? 

20. Contrast fixed with variable expenses of production. 

21. State the law of monopoly price. 

22. What effect has monopoly on the formation of large for- 

tunes? On small wages? 

23. What schemes for the control of natural monopolies have 

been suggested? 

24. Contrast large scale business with monopoly. 

25. Are monopolies bad because they make the poor poorer or 

the rich richer ? Are they bad where they make the rich 
richer and make the poor poorer? Are monopolies based 
on efficiency bad? 

26. Enumerate the different kinds of problems involved in the 

so-called problem of Trusts. 

Problems. 



1. A certain manufacturing monopoly can sell each year: 

2,000,000 machines at $1,000 

400,000 " 2,500 

300,000 " 5,000 

200,000 " 6,000 

100,000 " 8,000 

70,000 " 10,000 

50,000 " 12,000 

10,000 " 25,000 

Each machine costs on an average : 

$8,000 if it manufactures but 10,000 machines per annum. 



7,000 
6,000 
4,000 
3,500 
3,000 
2,000 
1,000 



50,000 
70,000 
100,000 
200,000 
300,000 
400,000 
2,000,000 



Monopoly 51 

(a) At what price will the monopoly manufacture and 
sell its machines? (b) What will be the price if the gov- 
ernment levies a tax of $2,000 per machine? (c) If the 
government levies a fixed tax of $20,000 per annum on 
the monopoly? 

2. An interurban street car company finds upon investigation 

that it can carry : 

15 million passengers at 3c. per ticket at a cost of 2 1 / 4c. each. 

13 million passengers at 4c. per ticket at a cost of 3c. each. 

12 million passengers at 5c. per ticket at a cost of Z 1 ^- each. 

10 million passengers at 6c. per ticket at a cost of 4c. each. 

S 1 /^ million passengers at 7c. per ticket at a cost of 5c. each. 

C million passengers at 8c. per ticket at a cost of 6c. each. 

4 million passengers at 9c. per ticket at a cost of 7c. each. 

2 million passengers at 10c. per ticket at a cost of 8c. each, 
(a) What price will it establish? (b) suppose the state 
charges a tax of one cent per ticket for every ticket sold, 
how will such tax affect the company? How much in- 
come will the state get? Will the company raise the 
price of the tickets? Explain. 

3. "Every owner of a railroad, of a patent, of a book or of 

monopolized property of any kind finds that he makes 
more money by putting prices down to the figures that 
are reasonable, that is, to the figures that correspond to 
the values to the buyers of the things sold, than by keep- 
ing them beyond those figures." (a) Explain the fallacy 
in this statement, (b) Name an article sold at a higher 
price than its value to the buyer. What is meant by 
"value to the. buyer?" (c) Name some force other than 
government regulation or public opinion that causes a 
monopoly to lower its prices. Explain how it works out. 

4. "It is absurd to claim that a public utility, i. e., a gas 

company or a street car company, has power to rob the 
public. Such a company can charge no more than the 
public is willing to pay. If the people think the price 
is too high they will not pay it and the company will 
reduce the rates to a fair price." Discuss the fallacies 
contained in the above under the following heads : (a) 



52 Elementary Economics Manual 

Can a gas company get only as much as the public is 
willing to pay? (b) What is meant by the public? Ex- 
plain the change in the meaning of "the public" as the 
price is reduced, (c) What is a fair price for a street 
car ride? If the price is raised to 10c, is this a fair 
price for those who see fit to make use of street cars? 

5. "By mutual agreement Madison liverymen have made an 

advance in the charge for certain vehicles. The price 
of carriages for funerals has been raised from $4 to $5 ; 
for balls and evening parties from $3 to $4." — Madison 
Democrat, Nov. 27, 1910. Does the above agreement in- 
dicate a trust or a monopolistic combination in the Madi- 
son livery business, or are the prices of carriages still 
governed by "the law of supply and demand?" If there 
exists a combination, can the Sherman Anti-Trust act be 
used to break it up ? Why ? Why have not prices for all 
carriages of all kinds been raised? Is this a class price? 
Explain fully. 

6. (a) When, where and why do space, light and air have ex- 

change value ? Do they affect the value of commodities ? 
(b) Do honesty, truth and character have exchange 
value? Why? (c) Does friendship ever have exchange 
value ? Utility ? 

7. The Dutch East India Company used to destroy a large 

part of the spice bearing plants in India each year in 
order to increase its own ' profits. Was its reasoning 
fallacious? (a) How does the Standard Oil, Whiskey 
Trust, or Tobacco Trust obtain the same results? 

8. How did the burley tobacco growers in Kentucky hope to 

affect the price of their products? See magazine litera- 
ture on the "night riders." 

9. In a certain market there is the following demand and 

supply : 
Buyer A will purchase only one unit if he has to pay 32 or more. 

two units if he has to pay 23 or less. 

three units if he has to pay 8 or less. 
Buyer B will purchase only one unit if he has to pay 28 or more. 



Monopoly 53 

two units if he can get them for 22. 
three units if he can get them for 17. 
Buyer C will purchase only one unit if he has to pay 24 or more, 
two units if he can get them for 19 each, 
three units if he can get them for 10 each 
Buyer D will purchase only one unit if he has to pay 10 or more, 
two units if he can get them for 16 each, 
three units if he can get them for 11 each 
Seller M will sell only one unit if he can get 14 for it. 

two units if he can get 19 for them, 
three units if he can get 22 for each. 
Seller N will sell only one unit if he can get 11 for it. 
two units if he can get 13 for it. 
three units if he can get 20 for each. 
Seller will sell only one unit at 10. 

two units if he can 16 each for them, 
three units if he can get 18 each for them. 
Seller P will sell only one unit at 12. 

two units at 13. 
" three units at 16. 

(a) Suppose one seller owns the entire output, four units, 
and is forced to sell all regardless of price, what will be 
the price if A, B, C. D, are the only buyers, and their 
wants are indicated above? 

(b) What will be the price if he has eight units and if he 
is forced to sell? 

(c) What will be the price if each seller has three units 
and his estimates are as indicated above? Plot the sup- 
ply and demand curve in each case. 



READING REFERENCES. 

Definition of Monopoly. 

Ely, Monopolies and Trusts, Chap. 1. 

Marshall, Priri. of Econ., ¥11 ff. 

Bullock, Introd. to Econ., 309. 

Seager, Introd. to Econ., 188. 

Jenks, The Trust Problem, Chap. IV, p. 58. 



54 Elementary Economics Manual 

Classifications and Causes of Monopoly. 

Bullock, Introd. to Econ., 313-39. 
Taussig, Prin. of Econ., 107-14. 
Ely, Monopolies and Trusts, Chap. 12. 
Seager, Intrbd. to Econ., 189. 
Hadley, Econ., Chap. 6. 

Monopolies and the Law of Monopoly Price. 

Taussig, Prin. of Econ., Chap. 15. 

Seligman, Prin. of Econ., 255-9. 

Seager, Introd. to Econ., 191-8. 

Ely, Monopolies and Trusts, Chap. 3. 

Marshall, Prin. of Econ., 478-80. 

Bullock, Introd. to Econ., 310. 

Hadley, Econ., 162. 

Levy, History of Monopolies in England, Monopoly and 

Efficiency, 190. 
Bullock, Quarterly Journal of Econ., XV, 211. 
Levy, Monopolies and Competition, 304. 
Van Hise, Concentration and Control, 96-99. 

Effect of a Tax on a Monopoly. 

Marshall, Prin. of Econ., 480. 
Hadley, Econ., 480. 

Monopolies vs. Combinations and Large Scale Business. 

Seligman, Prin. of Econ., Chap. 22. 
Nearing & Watson, Econ., Chap. 28. 
Ely, Monopolies and Trusts, Chap. 5. 
Jenks, The Trust Problem, Chap. 4, p. 67. 
Clark, Control of Trusts, Chap. 2. 

Public Policy and Monopolies. 

Taussig, Prin. of Econ., Chap. 62. 

Seligman, Prin. of Econ., 350, 370. 

Peerson, Prin. of Econ., 346. 

Hadley, Econ., 397. 

Wilson, The New Freedom, 163-169. 

Spargo & Arner, Elements of Socialism, 176-179. 



Monopoly 55 

Concentration and Control of Monopolies. 

Wyman, Annals of Amer. Acad, of Pol. and Soc. Science, 

XLIII, p. 64. 
Foulke, Jour, of Pol. Econ., XX, 413. 
Van Hise, Concentration and Control, Chap. V. 



CHAPTER XIV. 

MONEY. 

Definitions. 

I. MONEY is any standardized instrument of general ac- 
ceptability that passes freely from hand to hand (i. e.. 
without endorsement) in exchange for goods or prop- 
erty. 

II. THE MONEY STANDARD means the unit of- value in 
terms of which the value of all other kinds of money is 
expressed. 

III. SUBSIDIARY OR TOKEN money is money which is 

coined by the government for use as change in the 
smaller business transactions. 

IV. LEGAL TENDER MONEY is any money which a creditor 

is by law compelled to receive in discharge of a debt. 

V. COINAGE is the manufacture of metallic money, and 
means the official governmental certification of the 
weight and fineness of a piece of metal used for money 
purposes. 

VI. SEIGNIORAGE means a charge for coining bullion into 
money, sufficient in amount to yield a profit to the 

state. 

VII. BRASSAGE means a charge for coinage which is not 
in excess of the expenses of coinage. 

VIII. FREE OR GRATUITOUS COINAGE exists when no 
coinage charge is made. 

IX. UNLIMITED COINAGE exists when any person may 
take any quantity of bullion to the mint and have it 
coined into money by paying the usual seigniorage or 
brassage. 

56 



Money 57 

X. FIAT MONEY is irredeemable money, visually inconvert- 
ible paper money. 

Quiz Questions. 

1. What is a dollar ? Is its value measured in cents ? 

2. What is meant by standard money? What is the world 

unit of value? 

3. What is the meaning of the word money in the expression, 

' ' Mr. Jones is a monied man ? ' ' 

4. Is a money order money? A bank note? A check? 

5. What commodities were used as money in American colo- 

nial days ? What commodities are used today ? 

6. What qualities of gold and silver have made them particu- 

larly fitted for money ? 

7. What is meant by "coining" money? 

8. What is the purpose of coining money? 

9. What is seigniorage? 

10. What is meant by debasement of currency? 

11. Can the government create value by the use of a stamp on 

a piece of metal? Why? 

12. Does the United States charge any seigniorage on its 

coins? Can a country charge seigniorage without ham- 
pering its international trade? Why? Does the United 
States charge either seigniorage or brassage? 

13. Contrast brassage with seigniorage. 

14. What are the primary functions of money? The secondary 

functions ? 

15. Why does a gold dollar whose bullion value is 100 and a 

silver dollar whose bullion value is 53, and a paper dollar 
where the paper is worth 1, exchange for the same amount 
of value? 

16. Name the kinds of money that are standard in the United 

States today. What qualities must a good standard 
money possess? 

17. What is meant by free coinage of metal ? 

18. Do we have a limited coinage of any metals today? If so, 

what ones? , 

19. If the silver dollar is worth only 53 cents and it exchanges 

for one dollar, who makes the profit ? 



58 Elementary Economics Manual 

20. Do we have bimetallism in the United States today? 

21. (a) What advantages are claimed for bimetallism over 

monometallism? (b) "What advantages are claimed for 
monometallism over bimetallism? 

22. State Gresham's Law. What bearing does it have on bi- 

metallism ? 

23. What does a coinage ratio of "sixteen to one" mean? 

Value ? Weight ? Number ? 

24. Has bimetallism with the free coinage of silver, ever been 

tried in the U. S.? 'If so, when? 

25. Why has bimetallism ceased to be a political issue in re- 

cent years? 

26. When did Congress abandon the free coinage of silver ? 

27. What do you understand by the demonetization of silver? 

28. Contrast the market ratio with the "coinage ratio." 

29. What was the effect of the Bland- Allison Act and the Sher- 

man Act upon the use of silver ? 

30. Why were they called compromises? 

31. What led to the repeal of the Sherman Act? 

32. What was the main issue in the campaign of 1896? 

33. What is the "Jingle fallacy?" What is meant by the re- 

demption of money? 

34. When were greenbacks first issued? Contrast a greenback 

with a national bank book; with a promissory note. 

35. Should the greenbacks now in circulation be retired? Why? 

36. What effect did the use of greenbacks have on the cost 

of the war? 

37. What money is redeemable at present and in what is each 

kind redeemable? 

Problems. 

1. Mr. Jones came to the New York money market to obtain 
money for his manufacturing establishment. He found 
the supply of standard money very limited and the bank 
reserves very low and therefore had to turn to the 
monied men in New York to secure credit. He finally 
succeeded in obtaining $100,000 in currency, which he de- 
posited with the New York correspondent of his home 
bank which amount was afterwards transferred by bank 



Money * 59 

draft to his firm's account at home. Explain the mean- 
ing of each of the black type terms. 

2. Should an up-to-date government charge brassage? Seig- 

niorage ? 

3. Is the debasement of any kind of currency justifiable under 

modern conditions? 

4. What should be done with the silver bullion deposited in the 

treasury to secure silver certificates? 

5. Contrast the Sherman Anti-Trust Act with the Sherman 

Silver Purchase Act. 

6. Are there any good reasons for discontinuing the use of 

greenbacks as currency? 

READING REFERENCES. 

Definitions and Various Meanings of the Word "Money." 

Seager, Introd. to Economics, 302-8. 

Hadley, Economics, 71-2 ; 180-6. 

Conant, Principles of Money and Banking, Bk. 1, 3-80. 

Walker, Money, Trade and Industry, 1-78. 

Johnson, Introd. to Econ., 223-60. 

Scott, Money and Banking, 2-30. 

White, Money and Banking, 1-16. 

Seligman, Principles of Econ., 448-58. 

Johnson, Money and Currency, 6-10. 

Seigniorage. 

White, Money and Banking, 19-25. 

Johnson, Money and Currency-, 187-94. 

Seligman, Principles of Econ., 481-86. 

Conant, Principles of Money and Banking, 117-27 

Scott, Money and Banking, 75-9. 

G-resham's Law. 

Fisher, Purchasing Power of Money, 112-113. 
Scott, Money and Banking, 24-8. 
Johnson, Money and Currency, 194-6. 
White, Money and Banking, 25-9. 
Seligman, Principles of Econ. 486-8. 
Gide, Principles of Political Econ., 237-41. 



60 Elementary Economics Manual 

Bimetallism and the Silver Movement. 

Fisher, Purchasing Power of Money, 115-144. 
Taussig, Prin. of Econ., Bk. 1, 265-89. 
Johnson, Money and Currency, 217-41. 
Seligman, Principles of Econ., 486-88. 
Gide, Principles of Political Econ., 246-58. 

Fiat Money. 

Johnson, Money and Currency, 262-315. 
Taussig, Prin. of Econ., 310-30. 
Seligman, Prin. of Econ., 509-17. 
Gide, Prin. of Political Econ., 258-80. 

Greenbacks. 

Fisher, Purchasing Power of Money, 250-265. 
White, Money and Banking, 106-40. 
Johnson, Money and Currency, 263-315. 



CHAPTER XV. 

CREDIT. 

Definitions. 

I. CREDIT is the ability to secure goods or property at the 
present time in exchange for a promise to pay money 
or> goods in the future. 

II. CREDIT INVESTMENTS are contracts containing un- 
conditional promises to pay money or goods on demand, 
or at a definite time in the future. 

III. A BANK is an institution authorized by the government 

to deal in money and credits. 

IV. A BANK RESERVE is the cash on hand to meet possible 

demands. 

V. THE LAWFUL RESERVE is the amount of cash, not 
counting bank notes, which a bank is required by law 
to keep on hand to meet its current obligations. 

VI. A BANK DEPOSIT is a bank's promise to pay money to 
an individual or to a group of individuals. Legally it is 
a right action against a bank for money. 

VII. A CHECK is an order directing a bank to pay money to 
the bearer or to a person, or to a group of persons 
named. 

VIII. A BANK DRAFT is an order issued by one bank to an- 
other to pay money to the party or parties named. 

The Federal Reserve Act. 

The act provides : first, for the creation of a Federal Reserve 
Board — a national body with broad powers to regulate banks 
and banking activities carried on under federal jurisdiction. 

Second, the act provides for the creation of twelve Federal 
Reserve Banks endowed with limited general banking powers 

61 



62 Elementary Economics Manual 

and in addition with exclusive rights to act as federal deposi- 
tories, to issue bank notes and to serve as clearing houses for 
the banks of the district. 

Third, the act provides for the transformation of national 
and state banks into member banks with reserve require- 
ments slightly more favorable than those of the National Bank 
Act; and finally provides for the gradual refunding of the 
United States 2 per cent bonds and the transference of the cir- 
culation privileges from the member banks to the Federal Re- 
serve Banks. 

I. THE FEDERAL RESERVE BOARD. 

1. Composition: The Secretary of the Treasury, the Comp- 

troller of the Currency and five members to be ap- 
pointed by the President of the United States with the 
consent of the Senate. 

2. Chief Powers : 

(a) To examine and control Federal Reserve Banks 
and Member Banks. 

(b) To control the note issues so as to expand or con- 
tract the currency as the needs of the country seem 
to require. 

(c) To fix the discount rate for Federal Reserve Banks 
and specify the character of bills eligible for dis- 
count and to fix the rate of interest to be charged 
by Federal Reserve Banks on Federal reserve notes 
issued. 

(d) To raise or lower the reserve requirement for 
stated intervals. 

(e) To exercise the functions of a clearing house and 
indirectly to expand or contract credit. 

(f) To appoint three of the nine directors of each 
Federal Reserve Bank and to discipline any Federal 
Reserve Bank violating the law. 

3. The Federal Advisory Council is composed of one member 

chosen by each Federal Reserve Bank to act in advisory 
capacity with the Federal Resere Board. 



Credit 63 

II. THE FEDERAL RESERVE BANKS — BANKERS FOR 
BANKS. Twelve such banks provided for, one in each 
Federal Reserve District. 

1. Management: Each bank controlled by nine directors, 
three of whom shall be bankers and shall be selected by 
the member banks of the District; three shall be busi- 
ness men (not bankers) elected by the member banks; 
and three shall be appointed by the Federal Reserve 
Board. 

2. Capital Stock: Not less than $4,000,000 divided into one 

hundred dollar shares, to be subscribed by the member 
banks, by the general public, and by the United States 
Treasury. 

3. Earnings: 

(a) Six per cent- cumulative dividend paid on all stock. 

(b) Of the remainder, one-half goes into surplus until 
it equals forty per cent of the paid up capital stock ; 
after this all earnings go into the United States 
Treasury as a franchise tax. 

4. Reserves : Each Federal Reserve Bank must maintain gold 

or lawful money reserves equal to 35% of its deposits in 
addition to a 40% gold reserve against all outstanding 
notes. 

5. Powers and duties : 

(a) Must receive at par checks and drafts drawn on it 
by any of its depositors. Depositors include the 
United States government, the member banks of 
the district and other Reserve Banks. 

(b) May discount short term commercial paper en- 
dorsed by member banks. 

(c) May deal in gold coin or bullion, buy and sell 
United States bonds and notes, and without bank 
endorsement, bills of exchange, cable transfers, and 
bankers' acceptances. 

(d) May establish branch banks or agencies in foreign 
countries. 



64 Elementary Economics Manual 

(e) May receive government deposits. 

(f) May issue Federal reserve notes in denominations 
of $5, $10, $15, $20, $50 and $100, secured by equal 
amounts of rediscounted commercial paper and by 
first lien, equally with notes secured by United 
States bonds— on all the assets of the issuing bank. 

(g) To redeem notes, banks must keep 40% gold re- 
serves, of which five per cent must be in the United 
States Treasury. 

(h) Should reserve fall below 40'% limit, then a pro- 
gressive tax, gauged by the amount of the defi- 
ciency, is levied by the Reserve Board on the Re- 
serve Banks, to be obtained by increasing the rate 
of discount, which increase must be approved by the 
Board. 

(i) No Federal Reserve Bank is permitted, subject to 
a penalty of 10% of the face value of the notes, to 
pay out notes of any other bank — but said notes 
must be forwarded to issuing bank for credit or re- 
demption. 

III. MEMBER BANKS. 

1. Organization: Every National Bank must become a Mem- 

ber Bank within thirty days after notification, and state 
banks may join at any time by conforming to the Na- 
tional Bank Act, and subscribing to Federal Reserve 
Bank stock of the district, same equal to 6% of their 
capital and surplus. Failure of National Banks to qual- 
ify within six months works forfeiture of their charter. 

2. Privileges: Main privilege is the right to submit its com- 

mercial paper to the Federal Reserve Bank for redis- 
count, thus emancipating the bank from its present con- 
dition of dependence upon the cer+ral or corresponding 
banks. 

(a) Member Banks having capital and surplus of over 
one million may establish foreign branch banks. 

(b) May receive time deposits and pay interest on them. 

(c) When outside of Central Reserve Cities, banks may 
loan money on farm lands for periods not to exceed 



Credit 65 

five years, total of which shall not exceed over 50% 
of capital and surplus or one-third of time deposits. 

(d) Exemption from National Bank Act requirement 
of depositing United States bonds with the treas- 
urer. 

(e) May accept short time drafts and bills of exchange 
for exports or imports. 

3. Duties and Restrictions: 

(a) Reserves. In reserve computation, demand de- 
posits mean those payable in 30 days. Time De- 
posits payable after 30 days. 

1. Central Reserve City Banks. 

18% of demand and 5% of time deposits of 
which 6/18 must be in own vault, 7/18 in 
Federal Reserve Banks and 5/18 in either own 
vault or Reserve Bank. 

2. Reserve City Banks. 

15% of demand and 5% of time deposits of 
which 5/15 must be in own vaults, 6/15 in Re- 
serve Bank and 4/15 in either own vaults or Re- 
serve Bank. 

3. Country Banks. 

12% of demand and 5% of time deposits of 
which 4/12 must be in own vaults, 5/12 in Fed- 
eral Reserve Bank and 3/12 in either own vaults 
or Federal Reserve Bank. 

(b) May not keep more than 10% capital and surplus 
with a non-member bank, except where state laws 
require it. 

Quiz Questions. 

1. What is meant by making a deposit at a bank? 

2. May a deposit be created without bringing any actual money 

to the bank? How? 

3. What are the functions of a bank? Do all banks exercise all 

of them? 

4. Is there really less money in the country when the money 

market is said to be tight ? Explain. Is there less money 
in the banks or greater demand for credit? 



66 Elementary Economics Manual 

5. What is a bank note? Contrast with a green back. With a 

silver certificate. With a treasury note. With a promis- 
sory note. Are any or all of these legal tender? How are 
national bank notes kept at par with gold? 

6. What limitations are there on the issue of bank notes by 

national banks'? 

7. What central reserve city is nearest to your home? 

8. What is meant by "lawful money reserve" required of na- 

tional banks? May a bank be solvent when its reserve is 
inadequate ? 

9. Why is a money reserve needed by a bank? 

10. What is meant by a "run" on a bank? Now may it get 

started ? 

11. Should a bank keep enough reserve in its vaults to satisfy 

every depositor tomorrow, if they all wished to draw their 
money ? Why ? 

12. What is the chief difference between a state bank and a 

national bank? What other kinds of banking institutions 
are there? 

13. Why does money not needed for reserves in different parts 

of the United States tend to flow to New York ? 

14. Make out a list of different kinds of "collaterals" that may 

be used in securing bank loan? 

15. What sort of a collateral is chiefly responsible for the rapid 

expansion of speculation in recent years? 

16. What is a call loan? Who can secure a call loan? Under 

what conditions may banks safely extend their call loans? 

17. How high may the interest rates on call loans go? 

18. Is there any regularity in the movement of money ? Does it 

flow in any definite channels, or in any definite direction? 

19. In what direction is the flow of money in the early fall? 

20. Where is most of the money moving to at this time? 

21. How may this produce a tight money market in New York? 

22. Can exceptional influx or outflow of money to or from New 

York be foretold with any certainty? 

23. Is there a uniform unit of value throughout the United 

States ? 

24. Is there any particular season when large amounts of money 

flow into Europe ? 



Credit 67 

25. Why are our bank notes considered inelastic currency? 

26. Is there any elastic element in our currency at present ? Ex- 

plain. 

27. How has the currency been made more elastic during the 

past year ? 

28. What law makes this arrangement possible ? 

Problems. 

1. The nickel in a five cent piece is worth about one cent. The 

silver in four quarters or ten dimes is worth about thirty- 
six cents, ' ' cents ' ' being hundredths of a gold dollar. M and 
N and each buy a Sunday paper. M gives a silver dollar, 
the bullion of which is worth forty-two cents, and receives 
three quarters and two dimes in return. N gives a gold 
dollar the bullion of which is worth 100 cents and re- 
ceives three quarters and two dimes in return, and pays 
a nickel five cent piece for his paper. What value in gold 
does each pay for his paper? 

2. A state bank organized under the laws of Wisconsin has 

accounts as indicated. 

ASSETS. LIABILITIES. 

Loans and discounts $420,000 Capital $100,000 

Bonds and stocks— 25,000 Surplus 30,000 

Real estate 25,000 Undivided profits 20,000 

Other assets 25,000 Deposits 420,000 

Cash 75,000 



$570,000 $570,000 

(a) This bank adds to its securities $24,000 by discounting 
three months paper at 6 per cent, 4/5 being paid for 
by increasing its demand liabilities and 1/5 by cash. 
How would the account then stand ? 

(b) The bank diminishes the discounts by $100,000 of 
which % is paid in cash and % by surrender of de- 
mands for deposit to the same amount. The bank 
also increases the reserve by sale of $10,000.00 worth 
of bonds at a premium of 5 per cent. How would the 
account then stand? 



68 Elementary Economics Manual 

3. Enumerate and discuss all the different kinds of credit in- 

volved in banking transactions. 

4. If you hold a bank note issued by bank X, and if bank X 

fails, with liabilities three times as great as its assets, 
would your bank note be worth anything? "Would a ten 
dollar deposit be worth anything? Why? 

5. Contrast a bank with a sub-treasury, a bank with a trust com- 

pany, a state bank with a national bank, with special ref- 
erence to reserves, bank notes, and safety of deposit. 

READING REFERENCES. 

Definitions of Credit. 

Scott, Money and Banking, 92-105. 

Seligman, Prin. of Econ., 518-24. 

Johnson, Money and Currency, 34-35. 

Conant, Principles of Money and Banking, VII, 3-17. 

Bank Credit and Banking" Transactions. 

Fisher, Purchasing Power of Money, 33-55. 
Hadley, Economics, 232-8. 
Fiske, The Modern Bank, 1-25. . 
Taussig, Principles of Economics, VI, 331-60. 
Seligman, Principles of Economics, 524-36. 

National Banking- System. 

Seligman, Principles of Economics, 569-72. 
Fiske, A Modem Bank, 325-34. 
White, Money and Banking, 348-61. 

Speculation and Call Loans. 

Banking Reform, 109-22. 

White, Money and Banking, 416-25. 

Elastic Currency and Movement of Money. 

Banking Reform, 53-73, 124-40. 

Taussig, Principles of Economics, V, 1, 390-93. 

Currency Reform. 

Taussig, Principles of Economics, V, 1, 393-400. 
F.- M. Taylor, Political Science Quarterly, IX, 152. 
B. F. Yoakum, Worlds Work, XXIV, 519. 



CHAPTER XVI. 

CREDIT AND BANKING. 

Definitions. 

I. A FINANCIAL CRISIS is usually a short period of gen- 
eral loss and partial paralysis of credit in the business 
world, ordinarily accompanied by a period of sudden de- 
cline in prices. 

II. AN INDUSTRIAL CRISIS is the longer period of small 
profits and business stagnation that may, or may not, fol- 
low the financial crisis. 

III. AN INDEX NUMBER is a statistical device for measur- 

ing the changes in the general level of prices. 

IV. AN IDEAL STANDARD OF DEFERRED PAYMENTS 

is one that prevents changes in the relations between 
debtor and creditor which would normally be brought 
about by alterations in the price level. 

r V. A GOOD STANDARD of deferred payment is one that 
has stability of value over long periods of time. 

VI. A TABULAR STANDARD OF VALUE is a unit of 
value established by means of a carefully compiled index 
number of prices, based on a large number of representa- 
tive commodities, which unit would determine the amount 
of money a creditor may legally demand in payment of an 
obligation. If the price level increase ten per cent in a year 
a creditor would be entitled to $110.00 in payment of a 
hundred dollar note running the same length of time. 

Quiz Questions. 

1. What is a crisis? 

2. Upon what two variable elements does the amount of bank 

credit depend? Explain the variable element in each. 

69 



70 Elementary Economics Manual 

3. Do wages or prices increase most rapidly in a period of busi- 

ness expansion? 

4. What effect does this fact have on crises 

5. Are crises less frequent now than formerly ? 

6. Are they less severe than formerly? 

7. What effect is integration of industry supposed to have 

upon the frequency of crises? 

8. If the dollar decreases in value what effect will it have on 

prices ? 

9. What effect does a gradually depreciating standard have 

upon business? 

10. Name some conditions that may occasion a panic. 

11. What is meant by inflated capital values? 

12. Do we have inflated capital values ? 

13. May a country or town have inflated land values? How? 

14. Is it possible to have a commercial panic without any very 

serious disturbance of manufacturing or land values? 
How? 

15. Is it possible to increase the prosperity of a country by arti- 

ficially increasing the amount of money in circulation? 

16. Is there any difference between business prosperity and 

public welfare? 

17. Are large railway and industrial dividends a sure sign of 

national prosperity? 

18. With what kinds of transactions is the standard of deferred 

payments most concerned ? 

19. Why is there a greater tendency to demand a depreciating 

standard in primitive communities than in sections that 
have reached a more advanced industrial stage? 

20. What is meant by the tabular standard of value? 

21 . AVhat role would a system of index numbers play in such a 

standard ? 

22. Is there any way to prove that the value of money has 

changed during the past century? How? 

23. What measures the value of money? 

24. What is the chief difference between price fluctuations 

caused by inventions and changes in the cost of produc- 
tion and those due to changes in the value of money? 



Credit and Banking 71 

25. Is the value oi' gold changing at present? If so, is it in- 

creasing or decreasing in value? 

26. What use of gold is it that determines value? Its use in 

the arts or its use in money ? or both ? Explain. 

27. Does the cost of mining and refining gold have anything 

to do with its value? 

28. Why is it that more people do not go into gold mining? 

29. Does an increase in the supply of gold necessarily decrease 

its marginal utility ? 

Problems. 

1. If the output of gold should increase so that the quantity of 

gold on hand should exactly equal the quantity of copper, 
would its value be greater or less than that of copper? 
Why? 

2. If you alone knew that every piece of money should, by 

magic, be doubled in a night, which would you buy today, 
$10,000 worth of bonds or $10,000 worth of stocks ? Why ? 

3. Are salaried men more benefited by a gradually depreciating 

standard or by a gradually appreciating standard? (As- 
suming that their sole income is in the form of salaries.) 

4. Suppose a man borrows $5,000 for two years at 5 per 

cent, and suppose the monetary unit depreciates 10 per 
cent per annum. Would the creditor or debtor gain by 
the transaction? How much? 

5. If the total quantity of gold in the markets of the world 

should treble in thirty years, what effect would it have on 
the well-being of the stockbroker as compared with the 
well-being of the salaried official ? What effect on the well- 
being of the creditor class as compared with the debtor 
class ? 

6. Is a man really richer than he was, who obtains money in 

any other way than by gift, gambling or theft? 

7. If the prices in 1903 are: Broadcloth $1.00, soap 5c, coal 

$10.00, wheat $1.00, eggs 20c and salt 2c, while in 1914 
the prices are: broadcloth $1,25, soap 6c, coal $10, wheat 
$1.25, eggs 24c and salt lc,— construct an index number 
showing how prices have changed. 

8. Suppose a banker begins with $100,000 paid-up capital and 

suppose $20,000 in cash deposits are made by the public, 



72 Elementary Economics Manual 

how will the bank statement read? Now suppose the 
banker lends $50,000 by discounting 60-day notes at 6 per 
cent, how will the statement now read? Suppose further 
that some of the depositors draw out $25,000 in cash, 
how will that affect the bank statement? Suppose finally 
that the banker lends $30,000 for ninety days at 6 per 
cent, and after the discount has been deducted the bor- 
rowers draw out one-half of the balance in cash, crediting 
the balance. How will the bank statement read? 

READING REFERENCES. 
Crises. 

HIadley, Economics, 295-300. 
Taussig, Principles of Economics, VII, 44-54. 
Fisher, Purchasing Power of Money, 64-73. 
Seligman, Principles of Economics, 583-6. 
Jones, Economic Crises, the whole volume. 
Nicholson, Elements of Pol. Economy, 309-311. 
Gide, Prin. of Pol. Econ., 136-141. 

Index Numbers. 

King, Statistical Method, 100-102. 

Seager, Introd. to Econ., 352-22. 

Fisher, Elementary Principles of Economics, 247-53. 

Seligman, Prin. of Econ., 470-73. 

Taussig, Prin. of Econ., VI, 290-96. 

Value of Money. 

Seager, Introd. to Econ. 

Taussig, Prin. of Econ., VI, 236-52. 

Standard of Deferred Payments. 

Taussig, Prin. of Econ., VI, 297-310. 
Seligman, Prin, of Econ., 476-80. 



CHAPTER XVII. 

EXCHANGE. 

Definitions. 

I. A BILL OF EXCHANGE is a written order usually 
issued by a creditor to a debtor, directing him to pay a 
sum of money either at sight or at a specified time. A 
foreign bill of exchange calls for the payment of a sum of 
money in a foreign country in the currency of that 
country. 

II. CABLES mean transfers of credits to foreign countries 
by means of a cable message, usually taking place within 
an hour or two. (They are usually about twenty points 
higher in price than demand sterling.) 

III. DEMAND STERLING means a draft payable upon pres- 
entation at the bank upon which it is drawn. (Usually 
about two cents per pound sterling higher than a ninety 
day draft.) 

IV. A FINANCE BILL is an individual order upon a foreign 

bank directing it to pay money at some future date, with 
the expectation of meeting the draft when it matures by 
sending either demand sterling or cable. 

V. GOLD POINTS are the limits within which under normal 
conditions sterling exchange may fluctuate. 

VI. GERMAN EXCHANGE QUOTATION means the price 
of four marks in terms of American money delivered in 
Germany. 

VII. FRENCH EXCHANGE QUOTATION means the price 

of one dollar in terms of francs delivered in France. 

VIII. STERLING means the quotation of sight drafts in Eng- 

lish money, pounds sterling. 
73 



74 Elementary Economics Manual 

Quiz Questions. 

1. Is an importer a producer? If so, what kind of goods does 

he produce? 

2. What is the law of comparative costs? Apply the law to the 

case of a merchant who hires a man to take care of his 
furnace ; a physician who hires a clerk to take care of his 
accounts. 

3. Why does the law of comparative costs not settle the tariff 

controversy? Does the law of comparative costs operate 
between different sections of the same country? 

4. What trade restrictions can he justified even when the law 

of comparative costs seems to show the advantage of free 
trade ? 

5. What were the main principles advocated by the mercantil- 

ists? AVhat effect did they have upon internal trade? 

6. Explain what is meant by laissez faire reaction against mer- 

cantilism ? What great industrial change took place dur- 
ing the mercantile period? 

7. What countries have absolute free trade today? What coun- 

tries have a high tariff. 

8. Is it generally a sign of prosperity in a country if its exports 

are greater than its imports? 

9. Contrast balance of trade with balance of accounts. What 

items are included in the last but not in the first? May 
a country have a favorable balance of trade and an un- 
favorable balance of accounts ? Think of conditions of the 
United States during the European war. 

10. Does a continually favorable balance of trade necessarily 

lead to imports of gold and silver? 

11. Does an unfavorable balance of trade generally connote lack 

of prosperity in a country? 

12. What unit of value forms the basis of foreign exchange? 

13. What is a bill of exchange? Contrast it with a bank draft. 

14. What determines the upper and lower limit between which 

prices of exchange fluctuate ? What are their units called ? 

15. Is London exchange dear when it is quoted at $4.88? 

16. Is the price of London exchange at par when it is at $4.85 ? 

17. Is the price of Paris exchange high when it is at 5.16 ? 

18. Is the price of Berlin exchange high when it is .94? 



Exchange 75 

19. What are the chief factors that govern the distribution of 

the gold supply of the world? 

20. When the Bank of England raises its discount rate what 

effect does it have on the inflow or outflow of gold from 
England? How does it bring this about? 

21. Does gold necessarily flow into a country when it has a favor- 

able balance of trade ? Balance of accounts ? 

Problems. 

1. Suppose all the nations of the world should adopt the Amer- 

ican dollar standard, and discontinue their own currencies, 
would there be any "par of exchange?" Or any "rate of 
exchange?" Or any business for "bill brokers?" Ex- 
plain fully why in each case. 

2. Japan sells $10,000 worth of porcelain to a Chicago importer. 

Suppose Americans sell nothing directly to Japan, but sell 
large quantities of goods to England, Germany and South 
America. How would the Chicagoan pay for his bill of 
goods? Explain fully. 

3. If a country can produce wheat at a cost of one day's labor 

per bushel and steel at twenty days' labor per ton, would 
it be profitable for the two countries to exchange wheat or 
steel? If so, how? Explain fully. 

4. (a) Suppose a law could be passed and enforced that no 

dollar which comes into Madison could be sent out of town 
until two years had elapsed, would the city gradually be- 
come richer? and would its people become more prosper- 
ous ? Why ? 

(b) If Chicago banks should charge exchange on all money 
sent into Chicago from Madison and charge no exchange 
on all money sent from Chicago to Madison would the citi- 
zens of Madison be better or worse off than they are at 
present ? Why ? 

(c) Substitute the United States for Madison and London 
for Chicago in the above and then discuss. 

5. "If you buy your goods from a mail order house in Chicago, 

your money leaves Madison and it is possible, though not 
probable, that you will get the same quality of goods obtain- 



76 Elementary Economics Manual 

able from your home merchant, whereas, if you buy your 
goods at home your money remains at home and some of 
it will ultimately get back into your own pockets." Criti- 
cise. 

6. (a) Suppose it costs five dollars per thousand to ship money 

from San Francisco to New York and suppose ten thou- 
sand persons wish to send $1,000 each from New York to 
San Francisco, and only ten persons wish to send $1,000 
each to New York. At what price would the ten persons 
in San Francisco probably be able to buy New York ex- 
change ? 

(b) What would be the par of exchange in the above case? 

(c) What would be "gold points"? 

7. A student in the university gets a. check from his father in 

Sioux City drawn on the First National Bank of Sioux 
City. The student gets the check cashed at a local bank. 
What becomes of the check ? Trace its journey. 

8. Foreign and domestic exchange, December 30, 1910, is quoted 

as follows : 

1. Sterling exchange 4.8754, cable transfers 4.862, Bankers' 

sixty days, 4.874. 

2. For Paris bankers' francs were 5.16%. 

3. German bankers' marks were 94& for long and 94% less 

1/32 for short. 

4. Exchange at Paris on London was 25 f 26V2 c - 

5. Exchange at Berlin on London was 20m 44% pf- 

6. Chicago domestic exchange 10c per $1,000 discount. Bos- 

ton par. 

7. San Francisco, 60c per $1,000. 

8. St. Louis, 50c per $1,000 discount. 

9. St. Paul, 85c per $1,000 permium. 

(a) Explain what each of the above terms mean. 

(b) Explain in each case whether the exchange rate 

quoted is high or low. 



Exchange 77 

READING REFERENCES. 

Nature and Advantages of International Trade. 

*Taussig, Principles of Econ., V. 1, Chaps. 34 and 35. 
*Gide, Principles of Pol. Econ., 291-310. 

Seligman, Prin. of Econ., 587-593. 

Nicholson, Elements of Pol. Econ., 327-240. 

Bastable, Theory of International Trade. 

Fetter, The Prin. of Econ., 480-85. 

Johnson, Introduction to Economics, 324-28. 

Foreign Exchange. 

*Taussig, Prin. of Econ., V. 1, Chaps. 32 and 33. 

Johnson, Introd. to Econ., 338-48. 

Clare, The A B C of Foreign Exchange. 

Gide, Prin. of Pol. Econ., 381-388. 
*Seager, Introd. to Economics, 361-68. 

Seligman, Prin. of Econ., 593-97. 
*Pierson, Prin. of Econ., 516-25. 

Nicholson, Elements of Pol. Econ., 340-55. 
*Escher, The Elements of Foreign Exchange. 

* Especially recommended. 



CHAPTER XVIII. 

TARIFF. 
Definitions. 

I. A PROTECTIVE TARIFF is a tariff, the purpose of 

which is to tax chiefly those articles that come into com- 
petition with goods produced at home. It is merely one of 
several ways of regulating international trade. 

II. A REVENUE TARIFF is a tax on imports, levied pri- 
marily for the purpose of raising revenue for the gov- 
ernment. 

III. DUMPING means selling products to the foreigner under 
more favorable conditions than to the buyers at home. 

IV. RECIPROCITY is the general term applied to a class of in- 
ternational trading agreements, by which special trading 
privileges in one country are given in return for tariff or 
other concessions in the other. 

Quiz Questions. 

1. Enumerate in order of importance the arguments for a 

protective tariff. 

2. Name some of the fallacious arguments for protection. 

3. Explain why a home market is supposed to be superior to a 

foreign market. Does this apply to all cases ? 

4. Explain the argument against "dumping." 

5. Is dumping more or less prevalent than it used to be ? 

6. How may a protective tariff influence the selection of indus- 

tries to which a country may devote itself 1 ? 

7. State the true and fallacious arguments on the relation of 

the tariff to labor. 

8. Name in order of importance the arguments for free trade. 

9. Name some of the fallacious arguments against a protective 

tariff. 

78 



Taeifp 79 

10. State the real arguments against protectionism. 

11. What objections are there to a protective tariff as a system 

of taxation ? 

12. What effect has a protective tariff on legislation? 

13. May a tariff ever help or hinder a monopoly? Cite ex- 

amples. 

14. What is the last tariff law called? 

15. What kind of a measure is it? High or low tariff? 

16. Are the benefits derived from foreign trade di erent from 

those derived from domestic trade? Why? 

Problems. 

1. "In buying the steel for the Panama Canal from Germany 

and England, the United States is taking the bread away 
from its own citizens and giving it to the foreigners. Even 
though the price is six dollars per ton higher in America 
each of the six dollars give employment to American work- 
men, whereas, under the other system the entire sum goes 
to foreign capitalists and workmen." Criticise. 

2. (a) If it takes eighty days labor to produce a ton of tin 

plate in the United States and only sixty days labor in 
England, and if it costs twenty days labor to produce a 
ton of steel rails in the United States and eighteen in 
England, would it pay for the United States to export or 
import steel rails? Demonstrate, 
(b) What would be the answer if it cost thirty days labor 
to produce a ton of steel rails in the United States? 

3. A, by one day's labor can make nine units of flour, or two 

units of steel. B, by one day's labor can make two units 
of flour or nine units of steel. Would specialization and 
exchange be likely to take place ? If so what ? Would the 
situation be different if A and B represented nations in- 
stead of men? 

4. A, by one day's labor can make twenty units of flour, and 

ten units of steel. B, by one day's labor can make 15 
units of flour or five units of steel. Would specialization 
and exchange be likely to take place. If so what? Would 
the situation be different if A and B represented nations 
instead of men? 



80 Elementary Economics Manual 

5. It takes five days to cross the Atlantic now, where it pre- 

viously required from one to two months, and the cost of 
carrying a bushel of wheat from New York to Liverpool 
is one tenth of what it was formerly. How does this effect 
the protective tariff? Does a country need more protec- 
tion than formerly or less? Will the demands for pro- 
tection be more or less frequent than formerly? 

6. Criticise the following: 

' ' The tariff is the mother of the trusts. ' ' Are there any 
trusts not mothered by the tariff ? 

' ' The tariff is the chief cause of high wages in this coun- 
try." Are there any other forces that make wages higher 
in the U. S. than in Europe? 

"The tariff has no effect whatever on wages, since it 
raises prices of all goods consumed by the laborer by the 
same amount that his wage is increased." Is this true? 
Is it partly true? Explain. 

7. Contrast a tariff for revenue with a protective tariff. On 

what lines of goods would a tariff for revenue be levied? 
Is the existing tariff a tariff for revenue? 

8. Mexican laborers receive only 50 cents per day and American 

laborers receive an average wage of $2.00 per day. Assum- 
ing equal efficiency would America import everything from 
Mexico? Why? Assuming equality of labor efficiency 
and superiority of natural resources in Mexico, would we 
import everything from Mexico? Why? Would we 
necessarily import more from Mexico than from Canada, 
where the laborer receives an average of $1.50 per day? 

9. Which is best for men or society, abundance or scarcity? 

"A man becomes rich in in proportion as he sells his 
product at a high price." Applying this to each group 
of men in succession the scarcity theory is deduced. To 
create artificial scarcity restrictive tariffs and other 
means are used. Gut man is also a consumer. As a con- 
sumer he is rich in proportion as he buys at a low price. 
This leads to the theory of abundance. How do you 
reconcile these two items? Read Bastiat in Bullock's 
Readings, page 484-494. 



Tariff 81 

READING REFERENCES. 

The Home Market Argument. 

Smith, Adam, Wealth of Nations, Bk. IV, Chap. II. 
Pierson, N. G., Principles of Economics, II, 182-204. 
Bastable, E. C, Theory of International Trade, Chap. 1, 

8, 9, 10. 
Plehn, Carl C, Introd. to Pub. Finance, Chap. VII. 

Creates Employment for Laborers. 

Mathews, F., Taxation and the Distribution of Wealth, 

Chap. III. 
Taussig, Principles, Chap. 36. 
Seligman, Principles, 602. 
Baden-Powell, Protection, 93-104. 
Mangold, Labor Arguments in the Tariff Discussions, U. 

W. Bull. 1908. 

Protection and Prosperity. 

King, W. T., Is Protection Benign f Cotton, May and 

Jul. 1913, 9-27. 
Mathews. See above, Chap. II. 
Pigou, A. C, Protective and Preferential Duties. 
Jordan, The Fate of Ociodorum. 
Baden-Powell, G., Protection and Bad Times, Chap. VII, 

and State Interference, 30-40. 
Taussig, Principles, Chap. 37. 

Patten, S. N., Economic Basis of Protection, 22-93. ' 
Smart, Return to Protection, 46-60. 
Wise, B. R., Industrial Freedom, 165-223. 
Tarbell, The Tariff in Our Own Time. 

Protection and Differences in Labor. 

Redfield, W. C, The New Industrial Day, Chaps. IV, V. 
Emery, Harry C. Am. Economic Review, II, 20. 
Willis, H. P., Am. Economic Review, II, 40-60. 
Pierson, N. G., Principles of Economics, II, 175-182. 



CHAPTER XIX. 

DISTRIBUTION AS AN ECONOMIC PROBLEM. 

Definitions. 

I. DISTRIBUTION is that part of the science of economics 
which deals with the forces governing the division of the 
social dividend among the different classes and members 
of society. 

II. DISTRIBUTION INVOLVES A STUDY first, of the fun- 
damental institutions and forces upon which our socio- 
economic order rests; second, the shares of the national 
dividend received by the various factors engaged in pro- 
duction; third, of the private income of individuals and 
families and of the social forces affecting their relative 
size. 

III. FUNDAMENTAL INSTITUTIONS are Private Property, 

Right of Inheritance, Individual Freedom, Freedom of 
Contract, Vested Rights, Personal Liberty. 

IV. FUNDAMENTAL FORCES operating in the present distri- 

bution process are, Competition, Custom, Monopoly, Pub- 
lic Authority (regulation) and Benevolence. 

V; THE LAW OF DIMINISHING PRODUCTIVITY is a 

statement of a tendency in agriculture ,and to a limited 
extent also in other lines. of production, of returns to 
decrease with additional applications of labor or capital 
or natural resources to the enterprise. This tendency is 
manifest in each case only after the point of diminishing 
returns has been reached. 

6. The Rate of Return of each factor varies inversely with 

size of class and directly with size of other factors. In- 
crease in population lowers all shares but rent. Wages 
are lowered most. 

7. It is not the Technical Contribution of each factor but the 

economic contribution that determines its share. 

82 



Distribution as an Economic Problem 83 

Quiz Questions. 

1. "Why does distribution engage more attention now than in 

the time of Adam Smith or the Mercantilists ? 

2. What meanings can be assigned to the term Distribution? 

3. Explain the sense in which it is used in this chapter. 

4. Enumerate the chief existing institutions which largely 

control the distribution of wealth. 

5. Explain the connection of specialization of employment 

with the problem of distribution. 

6. Compare real income with money income. 

7. Enumerate the different kinds of income. How is it possi- 

ble for one man to receive all these? 

8. On what does a person's income depend? 

9. How can distribution be regarded as valuation in the case 

of wages? In the ease of land? 

10. Explain the law of diminishing productivity. 

11. What is meant by the marginal laborer? The marginal 

product of labor? 

12. Explain relation of interest to marginal product of labor. 

13. What is the marginal increment of capital? The marginal 

product of capital? 

14. Explain relation of interest to marginal product of capital, 

15. Is there a marginal product of land? Explain. 

16. Does the law of diminishing productivity apply to all in- 

dustries? %• <Jp^\\ 

17. In what way may an intrepreneur increase his output? "v*\ lu h 

18. Does the law of diminishing productivity have anything to/"*" 

do with the size of an undertaking? Will a business con- 
tinue to expand after the point of diminishing returns 
has been reached? 

19. How may the law apply to a three-story apartment house? 

Why not a five or six story apartment house? 

20. What rule should guide an entrepreneur seeking maximum 

profits ? 

21. Compare influence of marginal utility in valuation of con- 

sumption goods with influence of marginal productivity 
in valuation of productive goods. 

22. If all the factors of production increase proportionally, what 

is the effect on wages? 



84 Elementary Economics Manual 

23. If capital and population increase 20 per cent and land re- 

mains stationary, what is the effect on wages? Why? 

24. If population increases while the other factors of production 

remain constant, what is the effect on wages? 

Problems. 

1. A wheat farmer owning 160 acres of land and working alone 

can raise 1,200 bushels of wheat. He finds that, by em- 
ployed help, which he hires, he can get the following re- 
sults : 

1 man 2,000 bushels. 

2 men 3,100 bushels. 

3 men 3,900 bushels. 

4 men 4,300 bushels. 

5 men 4,500 bushels. 

6 men 4,700 bushels. 

Wheat is worth 80 cents per bushel on the farm and he can 
hire a man for the season for $240. . 

(a) How many men will he hire? q> 

(b) With the employment of which man will diminishing 
productivity begin? : 

(c) If, by intensive cultivation, the above farmer increases 
his wheat crop, will the price of wheat be lowered? 

(d) If the wages per laborer were to fall to $200 per season, 
would the above farmer farm more or less intensively? 
Prove mathematically. 

(e) Does intensive cultivation indicate that the common peo- 
ple are poor or prosperous? 

(f) The average English farmer raises 30 bushels of wheat 
to the acre, the average Wisconsin farmer only 15 
bushels. Would wage earners be more prosperous if, 
by "better" farming, the crop was increased to 30 
bushels to the acre ? Why ? 

2. A farmer without money whose credit is limited to $1,300 

wishes to increase the yield of his farm. He has his choice 
of investing $200 in agricultural machinery which will 
increase the yield 50 bushels, or $150 in an additional 
horse which will increase the yield by 60 bushels, or $1,000 



I 1~-<W V 



■^ ^ ' ,„ - ait h si 



Distribution as an Economic Problem 85 

in more land which will increase his yield 140 bushels, or 
$250 in labor to be paid at the close of the season which 
will result in an increased yield of 380 bushels. 
If during the season, depreciation in the value of the horse 
is $10 and the machinery $10, and if the care of each 
costs $10, and if the land remains stationary in value, 

(a) In what will he invest, if wheat is worth 80 cents a 
bushel and the interest rate is 10 per cent ? 

(b) In what will he invest if wheat is worth $1.00 and the 
interest rate is 5 per cent? 

3. Imagine a composite unit consisting of food, clothing, fuel, 
houses and miscellaneous articles grouped in the propor- 
tion in which they are used in the family of the typical 
workingman. Prove mathematically in which year the 
average workingman is more prosperous. 

1900 1910 

(a) Number of units produced (millions) 4,000 4,500 

Percentage going to labor 50 50 

Number of laborer's families (millions) 5 7 

Does the above indicate that an increase in the produc- 
tiveness of a nation necessarily means that the wage 
earners are better off ? 

1900 1910 

(b) Number of units produced (millions) 3,000 4,000 

Percentage going to labor (millions) 40 35 

Number of laborer's families 3 4 

Does this indicate that if production increases as fast as 
population the laborers necessarily are just as well off 
as before? 

1900 1910 

(c) Number of units produced (millions) 3,000 4,000 

Percentage going to labor 36 40 

Number of laborers' families (millions) 3 5 

Does this indicate that if the percentage of the total 
produce going to labor is increased and the total product 
is increased, that the laboring man is then necessarily 
better off? 



86 Elementary Economics Manual 

4. If by an advertising campaign, the Board of Trade secures 

many new factories and so greatly increases the business 
and population of the city, which of the following persons 
gain and which lose? "Why? 

(a) A man holding land for speculation. 

(b) The clay laborer. 

(c) A successful merchant with a well established store. 

(d) A small shop-keeper with moderate ability. 

(e) A retired business man having his money invested in 
securities but permanently continuing his residence in the 
city and owning his own house and lot. 

5. (a) Is the general rate of wages in a country determined by 

the value of the labor product at the margin or vice 
versa ? 
(b) Is the marginal productivity of labor on a given farm 
determined by the rate of wages or vice versa? 

6. (a) If the population of the United States were to increase 

until it was as densely populated as Germany is now and 
if capital were to increase just as rapidly as population, 
what would be the effect upon the purchasing power or 
commodity income of each of the following persons? 

(1) The owner of 320 acres of good farm land. 

(2) The day laborer. 

(3) The owner of 10 city lots in a thriving city. 

(4) The school teacher. 

(b) If new machinery and new processes were discovered 
which would enable the same number of farm laborers in 
the whole country on the same land to produce twice the 
amount of crops of every kind now produced and if, at 
the same time, the population of the agricultural nation 
were doubled, other factors remaining unchanged, would 
the effect be to raise or lower 

(1) Wages, 

(2) Rent, 

(3) Interest? 



CHAPTER XX. 

DISTRIBUTION OF WEALTH. 
Definitions. 

1. PERSONAL DISTRIBUTION OF WEALTH refers to the 
private wealth and incomes of individuals or groups and 
the more direct forces that determine their amounts. 



2. CLASSIFICATION OF INCOMES. 

tion.) 



(Personal Distribu- 



A. Earned, (directly) 


1. Wages. 


a. Salaries. 


i. e. through 




b. Fees (Doctors, Lawyers, Engineers, etc.) 


personal pro- 




c. Royalties. 


ductive efforts. 




d. Wages of management. 

e. Wages of labor. 

f. Tips or gratuities. 


(indirectly) 


2. Use income. 


a. Rent. 

b. Interest. 




3. Conjunctival 


a. Unearned increment of land. 




gams 


b. Increase in stock values. 


B. Legally earned 


Gains of luck, 


c. Discovery of mines, etc. 


but socially 


chance, etc. 


d. Inheritances from distant relatives or friends. 


unearned. 








4. Predatory gains. 


a. Monopoly returns (excessive). 

b. Capitalized privilege income obtained through legis- 
lation, tariffs, political corruption, etc. 

c. Income from manipulation of stock market. 

d. Artificial land booms. 

e. Exploitation of labor. 

f. Nepotism, political sinecures, offices involving 
nominal work, etc. 


C. Legally and really 


4a. Booty. 


a. Usury. 


unearned. 




b. Rack rents (illegal). 

c. Incomes obtained by fraud. 
"Get rich quick schemes." 

d. Adulterated foods. 

e. Stolen goods, etc. 


D. Parasitic incomes 


5. Caritative income. 


a. Charity. (Public and Private). 


(unearned or in- 




b. Supported by parents. 


directly earned). 




c. Supported by children. 



Tendency of law to transfer 4 into the 4a class and to confiscate by means of taxation, all socially 
created values. 



3. DISTRIBUTION OF CREATED VALUES AMONG (Fac- 
tors of production). 

1. Income from Capital — Interest. 

2. Income from Land— Rent, unearned increment. 

3. Income from Labor — Wages. 

4. Income from Entrepreneurial Services — Profits. 

87 



88 Elementary Economics Manual 

Distribution of income among people is entirely distinct from 
distribution among the factors of production. They would 
be nearly identical if each factor were provided exclusively 
by individuals who furnished none of the other factors. 

Quiz Questions. 

1. Contrast distribution among the factors of production with 

distribution among individuals. 

2. Contrast wealth with income. 

3. Is it possible to materially increase the income of the people 

of a country without greatly increasing the wealth of a 
country ? How ? 

4. Is it possible to change the absolute well-being of a people 

without changing the relative well-being ? How ? 

5. Is it possible to improve the relative well-being of a people 

without increasing the total amount of wealth in a coun- 
try? How"? Is it possible to change the relative well- 
being without changing the absolute well-being? 

6. Is the distribution of wealth getting worse from year to year? 

7. Is it possible to secure greater diffusion of wealth by means 

of legislation ? 

8. Along what lines may laws be enacted to secure this result? 

9. Explain the chief classes of causes of poverty. 

10. What is the average rich man's point of view with regard to 

poverty? Is poverty caused by maladjustment of distri- 
bution or lack of productive power by the poor ? 

11. Explain the graft theory of large wealth. 

12. Enumerate in order of importance the most important imme- 

diate causes of primary poverty. 

13. Name two classes of reform measures for curing the evils of 

poverty. 

14. What measures for changing the methods of wealth acquisi- 

tion have been proposed. 

15. Is greater diffusion of wealth desirable? 

16. Is equal diffusion of wealth desirable? 



CHAPTER XXI. 

RENT. 

Definitions. 

I. COMMERCIAL LAND RENT is the price paid to the 
owner of a natural resource (land, water power, minerals) 
for its services during a specified time. The services of 
land are fertility, location and standing room. 

II. CONTRACTUAL "RENT" is usually a payment agreed 
upon in a contract for the use of land and the fixed capital 
attached to it. This is not really rent at all. 

III. ECONOMIC RENT is a surplus secured by the owner of 
a natural resource, after the normal rate of interest, wages 
and profits have ben paid. It may usually be measured 

by the excess of its earning power over that of the poorest 
available natural resource of the same kind, assuming the 
most profitable intensity of cultivation or use. 

IV. URBAN RENTS are determined by the desirability of 
lands for standing room for business or residence purposes 
and not by the fertility of the soil. 

V. THE UNEARNED INCREMENT is the increase in the 
value of durable goods due to society or social forces and 
not primarily due to the efforts of the owner. 

VI. The amount of rent of a given piece of land, measured in 
money depends upon (a) price level ; (b) fertility of soil ; 
(c) location, including transportation facilities; (d) in- 
telligence of labor in general; (e) efficiency of capital in 
general. 

There is no inevitable tendency, for rents to increase. 
Eras of rising rents have been followed by eras of falling 
rents. Periods of rising rents give the land-owning class 
pr a larger share in the national income, and periods of fall- 
ing rents tend to reduce the landowners' share in distri- 
bution. 



90 Elementary Economics Manual 

VII. THE SELLING PRICE of a piece of land is determined 
either by (a) custom or (b) capitalized economic rent, or 
both. 

VIII. The forces that determine the selling price of land are 
first, the legal conditions of land ownership, such as se- 
curity of tenure, freedom of purchase and sale of lands, 
security of mortgages, liens, etc. Second, the amount of 
economic rent of the land in question. Third, the prevail- 
ing rate of interest and the agricultural credit situation, 
and finally social prestige of land ownership and the gen- 
eral trend of land values or rents anticipated for the 
future. 

Quiz Questions. 

1. Define rent (a) popular meaning (b) scientific meaning. 

2. Enumerate the chief services performed by land. 

3. "Rent is what is paid for the original indestructible quali- 

ties of the soil." Criticise. 

4. Does climate have anything to do with rent? If so, how? 

5. What effect has cheap ocean transportation had on rents in 

England ? 

6. What effect has location on rent? Define location; location 

with reference to what? 

7. Has the relative location of English wheat land been changed 

by transportation facilities? How? Has the relative lo- 
cation of Dakota lands been similarly changed ? 

8. Contrast the relative importance of quality and location in 

affecting the rent of land. 

9. Do agricultural rents respond more or less readily than the 

price of wheat to competitive forces? 

10. If all lands were of the same quality and equally accessible 

could there be any rent? Would there necessarily be any 
rent? 

11. If all lands were of the same quality but not equally accessi- 

ble, would there be any rent? 

12. State the theory of rent. What does a theory of rent really 

aim to solve? Explain. 

13. What is the relation between the law of diminishing returns 

and rent? Would there be any rent if the law did not 
apply to land ? 



Rent 91 

14. Rent is a differential over marginal or no rent land. 

(a) What is meant by marginal land? (b) Under what 
conditions would the margin be forced up? (c) Down? 
(d) What is meant by the intensive margin? (e) The 
extensive margin? 

15. Suppose land can be used for different purposes, what use 

determines its rent, the poorest or highest? 

16. Suppose a farm sells for $10,000, for how much will it rent 

if the prevailing rate of interest is six per cent? 

17. If the rent of a farm is $500 per annum, and the prevailing 

rate of interest is five per cent, what is its value. Is 16 or 
17 a proper question? Why? 

18. Does the rent of a farm determine its value or does its value 

determine its rent? 

19. Is there any no-rent land in the United States today? If 

so, where? 

20. Why is the selling value of land in England expressed as 

"twenty years purchase?" 

21. How would it be expressed in Louisiana where the prevail- 

ing rate of interest is eight per cent? 

22. Given two communities with the same rate of interest, why 

is the ratio of land value to rent likely to be higher in the 
locality with a growing population? 

23. In a densely-populated country are increasing rents a sign 

of progress or retrogression? 

24. Do rents tend to increase with the increase of population 

after the point of diminishing returns has been reached? 

25. What is meant by the unearned increment? Does the owner 

of rare old wine get an unearned increment? Does every 
farmer get an unearned increment? Why? 

26. Do rents cause high prices of agricultural products or do 

high prices cause high rents? Does the cranberry marsh 
give value to the cranberries or do the cranberries give 
value to the cranberry marsh? 

27. Do high rents cause intensive cultivation, or does intensive 

cultivation cause high rents, or are both the results of 
some other cause? 

28. What are the chief causes of high rents in cities? 



92 Elementary Economics Manual 

29. Would rents normally be higher in Madison than in Racine 

or Eau Claire? Why? 

30. What effect has the presence of Chinese or negro residences 

on a certain street upon the rents in the neighborhood? 
Why? 

Problems. 

1. Given the following normal data pertaining to a wheat farm 

in Minnesota: Acres cultivated, 690; yield per acre, 20 
bushels; selling price of wheat, $1.00 per bushel; annual 
value of farmer's service, $1,000 ; number of men employed, 
10; number of months each laborer worked, 6; monthly 
wage of each laborer, $50; value of capital goods em- 
ployed, $10,000 ; cash in bank for current expenses, $2,000 ; 
annual depreciation of capital, ten per cent; interest rate, 
six per cent; annual expenditure for insurance and taxes, 
$720. 

(a) Determine the annual economic rent of the farm. 

(b) If this is the normal return on the farm, at what price 
would you be willing to purchase it? 

(c) How would an anticipated larger future value of the 
product influence the purchase price? 

2. State M with an abundance of unoccupied land is using four 

grades for the production of wheat. With the same ex- 
penditure of labor and capital, assuming it to be the most 
profitable in each case, grade A yields 30 bu., grade B 
yields 25 bu., grade C yields 20 bu., grade D yields 15 bu. 
Grade D is marginal land. Wheat is selling at $1.00 per 
bushel. What is the economic rent of each grade of land ? 

3. (a) Assuming perfect competition, demonstrate that (1) the 

landlord cannot exact more than the economic rent from 
a tenant; (2) the tenant cannot secure the use of land 
without paying as much as the economic rent, 
(b) Criticise: "Among the many causes contributing to the 
advance in prices may be enumerated : Increased cost 
of production of farm products by reason of higher land 
values." (Extract from Senate Report on Wages and 
Prices of Commodities.) 



Rent 93 

4. (a) Give the two chief causes for residence rents being 

higher in Madison than in other cities of the same size 
in the state. 

(b) If a city secures rapid and convenient transit facilities 
how will it affect rents (1) in the retail district? (2) in 
the inner residence sections? (3) in the suburbs? 

(c) Does the fertility of Dakota lands have any effect on the 
rents of agricultural lands in Germany ? On urban rents 
in France? Explain. 

5. (a) A typical extrepreneur who could earn $1,500 per year 

as an employe has $30,000 to invest. If he goes into 
the business for which he is best fitted, the retail shoe 
business, he will need to lease a certain city lot upon 
which to erect his store. This lot has no other use which 
will pay better than the one for which he proposes to 
use it, but several others which are approximately as 
profitable. The next best investment of his funds would 
be in securities netting him five per cent per annum. By 
renting the lot and devoting his entire time to the busi- 
ness, his net receipts above insurance, taxes, and oper- 
ating expenses will amount to $5,000. About how much 
rent will he have to pay for the lot ? 
(b) How much net income above taxes, insurance, and oper- 
ating expenses could a typical marginal farmer who could 
earn $1,000 per year as an employee, secure, on the 
average, by investing $10,000 capital in the most profit- 
able amount of marginal land, if interest rates are eight 
per cent ? If he finds that he needs 200 acres of marginal 
land to get the best results, what would be the total rent? 

6. Suppose an island is discovered in the Pacific Ocean contain- 
ing 92,000 acres of arable land peculiarly suitable for 
wheat cultivation. Suppose further that the land is, by 
law, divided into four classes according to fertility : Class 
I, containing 4,000 acres, subdivided into one hundred 
40 acre farms ; Class II, 8,000 acres, into one hundred 80 
acre farms; Class III, 16,000 acres, divided into one hun- 
dred 160 acre farms ; and Class IV, 64,000 acres, divided 
into one hundred 640 acre farms. Assume also that any 
one of these farms may be homesteaded but that no fam- 



94 Elementary Economics Manual 

ily is allowed to own more than one farm. A Class I farm 
will yield, on an average, 1,000 bushels of wheat over and 
above the cost of machinery and subsistence for the family 
cultivating it. Class II will yield 600 bushels excess. Class 
III will yield 200 bushels excess. Class IV yields no sur- 
plus, but just enough to pay the cost of cultivation. If 
the price of wheat is 80c per bushel, 

a. What will be the total amount of rent if a boat load of 

ninety immigrant families reaches the island and en- 
gages in wheat farming? 

b. What will be the total rents if a second boatload of ninety 

families arrives and also starts wheat farming? 

c. A third? 

d. What will it be if a fourth boatload arrives ? 

e. What effect will cheaper ocean transportation facilities 

have assuming that thereby the price of wheat is in- 
creased to $1.00 per bushel? 

f. Suppose a new continent with unlimited quantities of 

available Class I land is discovered, how will it affect 
the rents on the island? 

7. Suppose a discovery is made in agriculture by which the per 

acre yield of wheat land is doubled all over the world (as- 
suming the same application of labor and capital) . 

(a) What effect will it have on the rents of wheat lands? 
Of corn lands ? Of other lands ? 

(b) Suppose the discovery remains a secret of the farmers 
of one state, and is not known elsewhere, how will it 
affect (1) rents of wheat lands within that state, and 
(2) elsewhere? 

8. Suppose (a) it is discovered that the lands around Madison 

are peculiarly adapted to tobacco culture, yielding on an 
average of $60.00 per acre surplus over cost of cultiva- 
tion, how will it affect farm rents? (b) If it is found that 
a certain variety of peach trees will thrive and yield a 
regular crop worth $1,000 per acre over the cost of labor 
and capital involved, how will it affect rents? 

9. Suppose the university immediately builds dormitories capa- 

ble of housing 2,000 students, what effect will it have on 
-t; student room rents? on house rents? 



CHAPTER XXII. 

THE "WAGES SYSTEM AND THEORIES OF WAGES. 

Definitions. 

I. THE WAGE FUND THEORY. (The doctrine of low 
wages.) 

"Universally, then we may affirm, other things remain- 
ing the same, that if the ratio which capital and popu- 
lation bear to one another increases, wages will rise ; 
if the ratio which population bears to capital increases, 
wages will fall." Mill, Pol. Econ. p. 44. Trades 
unions were said to be powerless to raise the general 
level of wages. They might raise the wages of one 
group, but always at the expense of the remaining 
groups of laborers. 

Essentials. 

(a) Wages are paid out of and depend upon the amount of 

the capital. 

(b) The capital devoted to hiring laborers (the wages fund) 

is fixed by past actions of capitalists and cannot be 
increased, except for the future. 

(c) Laborers can influence their own wages only by increas- 

ing or decreasing their own numbers. 

(d) Labor unions and collective action for or by laborers 

are useless. 

Criticism. 

(a) Wages are paid not out of capital but out of product. 

They are merely temporarily advanced out of capital 
- — the product of industry has been discounted. 

(b) Capital devoted to hiring laborers is an elastic quantity, 

and may be greatly augmented or contracted at any 
time. 

(c) This capital fund may be augmented in three ways : 

1. Increased saving by capital owner. 
95 



96 Elementary Economics Manual 

2. Increased efficiency on the part of laborers. 

3. Increase in number of laborers with same effi- 

ciency, 
(d) The laborers' contribution to the wage fund may more 
than counterbalance the increase in population. The 
ratio of capital to population is not fixed, and laborers 
may modify either one. 
The popular theory that wages depend entirely upon 
supply and demand for labor is based partly on the wages- 
fund fallacy. Capital (circulating) is supposed to repre- 
sent demand and population the supply of labor. The sup- 
ply of labor may be increased without increasing popula- 
tion and the demand for labor may be increased without 
increasing circulating capital. 

II. RESIDUAL CLAIMANT THEORY. 

Essentials. 

1. Returns of capital and land, i. e., interest profits and rent, 

are determined by definitely fixed laws. 

2. Wages equals the entire product of industry minus the 

three parts above mentioned, x Product — (rent -f- 
interest -j- profits) = y Wages. 

3. An increase in the product due to efforts of laborers, goes 

to them by purely natural laws, provided competition 
is full and free, (x -(- m) Product — (rent -j- interest 
profits) = (y -f- m) Wages. 

Criticism. 

1. The share of the entrepreneur is not deducted from the 

product first but last. 

2. The entrepreneur and the capital may sometimes by ex- 

ploitation get a part of the share of the wage earner, 
or the laborer, by creating a monopoly, may secure 
most of the profits of the entrepreneur and a part of 
the interest on capital and of the rents of the landlord. 

3. An increase in product generally tends to increase the 

shares of all factors of production. 
Element of Truth. If laborers produce more, they will 



Wage System and Theories op Wages 97 

in the long run get larger returns and if they decrease out- 
put, wages inevitably tend, in the long run, to be reduced. 

III. SINGLE TAX THEORY OF WAGES. 

Wages are fixed by the amount men could earn by 
working for themselves, (a) on free land; (b) on rent 
land. 

They depend upon the margin of production or upon 
the produce which labor can obtain at the highest point 
of natural productiveness open to it without the pay- 
ment of rent. 

On free land they are fixed by the entire yield of the 
land; on rent land by the difference between the yield 
and the rent. 
As the margin of no-rent land is lowered wages fall. 

Criticism. 

(a) It is not true that wages in industry are fixed by what 

men could earn working for themselves. This theory 
does not conform to the facts. 

(b) Wages are often lowest where free land is most abun- 

dant. Wages rise in cities first and then in the 
country. 

(c) Free land had much greater influence over wages in the 

pioneer days than now. An exaggerated importance 
is ascribed to a phenomenon which was important at 
one stage in the history of the nation. 

IV. THE IRON LAW OF WAGES. 

The value of labor, as a commodity, is determined by 
its cost of production, i. e., by the cost of perpetuating 
the supply of laborers. (Socialist Theory.) See P. 

V. STANDARD OF LIFE AND WAGES. 
Three Theories. 

1. 

(a) Wages in any group are fixed by the standard of life 
of those laborers who have the highest scale of 
comfort: i. e., tend toward the cost of the most ex- 
pensive portions of the necessary labor supply. 



98 Elementary Economics Manual 

(b) Most laborers get a margin above subsistence, i. e., 

above their standard of comfort. 

(c) High standard laborers therefore are best. Laborers 

who own homes are inferior to those who are unable 
to save, and live up to the last cent. 
2. 

(a) Wages in any group are fixed by the standard of life 

of those laborers who have the lowest scale of com- 
fort, i. e., the least expensive portions of the neces- 
sary supply. (See Iron Law of Wages.) 

(b) Only the lowest class of laborers in each group are 

relatively above want. The rest get less than their 

standard of life calls for. 
3. The standard of life of the lowest class of the population 
is the principal long-time determinant of wages for it 
relatively governs the rate of increase of the population 
and hence the labor supply of the next generation. 

Criticism. 

(a) The third theory is correct. The importance of the 

standard of life theory has been greatly misinter- 
preted in economic literature. 

(b) There is no necessary immediate relation between the 

standard of life and wages. It is apparent only when 
traced to the next generation. 

(c) A static standard has no immediate influence whatever. 

A dynamic standard, causing increased effort, effi- 
ciency and moral self-control, on the part of the labor- 
ers, may somewhat elevate the laboring population, or 
at least that part of the class that has this standard. 

VI. MARGINAL PRODUCTIVITY THEORY OF WAGES. 

(a) The wages of any one of a group of laborers will, in 
general, equal the marginal product of labor; i. e., 
the addition to the product ascribed to any one la- 
borer. 

(b) An increase in efficiency of labor or an improvement 
in methods of production tends to raise wages. 

(c) A decrease in the efficiency of labor or capital or an 
increase in population tends to lower wages. 



Wage System and Theories op Wages 99 

(d) High standards of living among laborers limit the 
supply of labor and tend to raise the marginal pro- 
ductivity of labor in the next generation and thus 
raise wages. 

Criticism of Marginal Productivity Theory. 

(a) This theory assumes the existence of unrestricted com- 

petition in the labor market. 

(b) It assumes that the employer is regularly able to esti- 

mate the value of the marginal product and to dis- 
charge laborers who do not earn their wage. 

(c) It assumes that the standard of life limits the supply 

and that, in general, all increase due to the efficiency 
of labor goes to the laborer. 

(d) The theory explains, correctly, that wages tend to ap- 

proximate the product of the marginal laborer. 

VII. GENEEAL CONSIDERATIONS. 

Wages in a particular industry may temporarily fluc- 
tuate between two extremes : The upper level beyond 
which wages cannot go is fixed by the value of the entire 
product and includes the returns which normally would 
go to the landlord, the capitalist, and the entrepeneur. 
The lower level may in some few cases be fixed below the 
subsistence minimum, but in the long run wages cannot 
remain below the amount of necessities and comforts 
which the laborers regard as essential and the reduction 
of which would mean a decrease in population. Between 
these two limits wages are fixed by bargaining. The 
story of the bargaining and of the forces helping or hin- 
dering the two parties in the bargain constitutes what is 
known as the Labor Problem. 

VIII. WAGES may be regarded as high or low from three 

different points of view. First, from the standpoint of 
the employer, wages may appear to be high or low when 
compared with the efficiency, amount of output and value 
of the product resulting from the laborer's effort. Sec- 
ond, from the standpoint of the laborer, wages may be 
high or low when compared with his fatigue, sacrifice, 



100 Elementary Economics Manual 

loss of leisure, etc. Third, from the standpoint of the 
social reformer, wages may be regarded as high or low 
when compared with the needs of the laborer. From the 
last point of view increasing wages are socially desirable. 
Poverty and misery on the part of great masses of people 
are the greatest hindrances to progress. The limitation 
upon each of these interpretations of the labor movement 
should be clearly recognized. In general an economic 
civilization is best promoted by increasing returns to 
labor and increased purchasing (consumer's) power in 
the lower classes. 

Quiz Questions. 

1. Define wages. Enumerate the essential characteristics of 

the wage system. Contrast the wage system with the 
system of remuneration that prevailed during the feudal 
period. 

2. What kinds of services are included under the head 

"labor?" 

3. Is this the same as the use of the term in the phrase 

"laboring class?" 

4. Explain what is meant by the "labor problem." 

5. Is the price of labor governed by the same laws as the 

prices of other commodities? 

6. Is it socially desirable to increase or decrease the total 

effective demand for labor? The total amount of goods 
produced by labor? 

7. In what ways may the demand for labor be increased? 

8. Do machines always increase the demand for labor? Al- 

ways decrease it? How? What effect will public trade- 
schools have on the wages of artisans? On the wages of 
unskilled laborers? What limits the number of spar- 
rows ? Do the same influences affect the supply of labor ? 

9. What is meant by the supply of labor? Compare the poten- 

tial supply with the actual supply of labor. What is 
meant by the demand for labor? Is it demand for ser- 
vices of laborers or for the products of the laborers' 
efforts ? 



Wage System and Theories op Wages 101 

10. Is general supply or the supply in each group the important 

force in determining the wages of the group ? 

11. Is labor a perishable commodity? How? 

12. Is labor more easily or less easily marketed than wheat? 

Why? 

13. "The structure of population is a variable thing." Ex- 

plain. How does it affect the supply of labor? 

14. In Belgium women work in the mines and fields beside the 

men. Is the supply of labor greater there than in a 
country where they do not do so? 

15. Is the supply of labor always proportional to population? 

16. In comparing the supply of labor in two countries, what 

else must be considered besides the number of persons 
industrially employed? 

17. Explain the Malthusian theory of population. 

18. Is the Malthusian theory of population a good example of 

an economic law? 

19. Is it a true theory? 

20. Explain the subsistence theory of wages. 

21. What is meant by the standard of life? The standard of 

life theory of wages? 

22. Why is the last theory called a corollary of the Malthusian 

law of population? What is the relation between 
the two? 

23. Does a high standard of life have any immediate influence 

on wages ? 

24. Name some of the non-competing groups among the work- 

ers of a country. 

25. How is the supply of labor in each group determined ? 

26. What are the chief causes for differences of wages in these 

groups? 

27. Why is the laborer at a disadvantage in the labor contract ? 

28. Name the two limits within which the bargain in the labor 

contract may fix the rate of wages. 

Problems. 

1. (a) The burning of Science Hall and the State Capitol was 
beneficial to the laborers of the state, since it increased 
the demand for labor. Explain fully the fallacies con- 
tained in this statement. 



102 Elementary Economics Manual 

(b) The Black Death was, in the long run, an advantage 
to the laborers of England, since it carried away one- 
third of them, and enabled the remaining two-thirds to 

obtain higher wages for a period long enough to establish 
a higher standard of life. Is there any truth in this 
statement ? 

(c) Why is the standard of life of the American laborer 
higher than that of the European? Enumerate all the 
forces that tend to raise the standard in the United 
States. 

2. Suppose a law should be enacted that women should receive 

the same wages as men wherever the work is similar. 

(a) Would it increase the supply of labor? 

(b) Would it decrease the supply of labor? 

(c) How would it affect the wages of men? 

(d) Would it benefit the wage earning class? 

3. (a) Suppose all the servant girls should enter into a secret 

agreement to break as many dishes and to destroy as 
much furniture as possible, would it increase the demand 
for labor? 

(b) If the laborers became so prosperous that their daugh- 
ters did not go out to work, would it decrease the supply 
of labor and ultimately raise wages ? 

(c) Suppose one-third of the able-bodied men of a country 
were maintained as soldiers or pensioners, would that 
decrease the supply of labor and raise wages ? Would it 
benefit the laboring class? 

(d) Suppose one-third were paupers, convicts and idlers: — 
would wages be higher or lower than if all were engaged 
productively? Would the wage earning class be better 
off? 

4. (a) Suppose the fertility of the soil were reduced fifty 

per cent, so that it would require twice as much labor as 
at present to raise a bushel of wheat, would not the 
demand for labor increase and the wages of labor 
increase? 
(b) If the work of a stone cutter could be done by means 
of a stone saw costing a small amount, with the aggregate 



"Wage System and Theories op Wages 103 

expenditure of one-half as much labor as before, would 
the utilization of stone saws in the long run be harmful 
or beneficial to laborers in general? 

(c) Suppose the state established free technical schools 
and thus increased the average industrial efficiency of 
the laborers, would it in the long run tend to raise or 
lower wages ? 

(d) If the state by means of industrial and agricultural 
experiment stations introduced improved labor saving 
methods of production, would it, in the long run, tend to 
raise or lower wages ? 

(a) If the United States should establish a universal pen- 
sion system, giving each family a pension of five dollars 
per month for each individual in the family would it 
tend to improve or injure the laboring classes, assuming 
that the pension money is obtained by taxation? 

(b) Would it be beneficial or harmful to the wage earning 
classes if the money were obtained from tribute paying 
foreign nations ? 

(c) Would it be advantageous to the laborers if the state 
should give every wage earner a pension of twenty dol- 
lars per month regardless of his earnings, assuming that 
the pension money were obtained by taxation? 

(d) What effect would it have if the pension money were 
not paid in cash, but were given in the form of industrial 

, schools, art galleries, public playgrounds, libraries, etc.? 

(a) Does food supply have anything to do with the effi- 
ciency of labor? 

(b) Do religion and moral motives have anything to do 
with the industrial efficiency of labor? 

(c) Do wants for luxuries and comforts have anything to 
do with the efficiency of labor? 

(d) Do education and general intelligence have any influ- 
fluence on the efficiency of labor? 

(e) Does heredity (e. g., temperament, artistic ability) 
have any influence on efficiency? How? 

(f) Does the family institution affect the industrial effi- 
ciency of laborers ? How ? 



104 Elementary Economics Manual 

7. (a) Assuming immigration into the United States to be 
stopped and that the laborers generally should regard 
as necessities, the use of tobacco, weekly visits to the 
"movies," more costly clothes, etc., involving an expen- 
diture of $5.00 per week per family more than is at 
present deemed necessary, would this enlargement of 
their wants tend to increase their wages in five years? 
In fifty years? Why? Explain fully, 
(b) If as a result of a great war the laborers generally 
acquired habits of economy, etc., ate meat less often, 
spent less on amusements and clothes, would the ten- 
dency be for their wages to decline or to rise in five 
years ? In twenty years ? Explain fully the casual re- 
lations. 



CHAPTER XXIIA. 

FORCES THAT INFLUENCE WAGES. 

I. FREE LAND. 

(a) Free land does not affect 'wages by establishing a 
standard wage to which factories must conform, but by 
withdrawing wage earners from factories it tends to 
decrease the available supply and thus, if free land is 
fertile, to raise wages, (b) Free land tends to make the 
laborer more individualistic and independent. This in- 
fluence is of little importance today, (c) Free land and 
opportunities for employment on rent-land exercise a 
constant though relatively unimportant influence on 
wages today. 

II. MACHINERY. Two Theories. 

(a) "A machine is an iron man which competes with 
living men and lowers their wages by overworking and 
outbidding them." Machinery and invention in the long 
run decrease the share of the laborers. 

1. Machinery increases the product but the whole sur- 

plus goes to capital. 

2. Machinery displaces labor and causes unemploy- 

ment. 

3. It lengthens the working day. 

4. It causes excessive specialization (narrowing influ- 

ence on laborer). 

5. It produces crises. 

6. It causes the employment of labor under circum- 

stances unfavorable to health, morals and effi- 
ciency. 

7. It transforms the independent worker into a wage 

slave. 

8. The centralization of wealth and power are machine 

made. 
(b) Machinery on the whole is beneficial to laborers. 

105 



106 Elementary Economics Manual 

1. Machinery in the long run creates more employment 

for labor than it destroys. 

2. "Where machinery has been most extensively intro- 

duced there is the greatest demand for labor. 
3. Machinery takes oyer the heavy muscular work. 

4. Machinery is not labor saving but product making 

— the same labor produces a much larger product 
than before. 

5. Increased capital means increased competition for 

the services of laborers forcing the relative income 
of the capitalist down and that of the laborer 
upward. 

6. Woman and child labor has decreased where ma- 

chinery has been most extensively used. Most 
woman and child labor is in the South and in un- 
progressive parts of Europe, 
(c) General Conclusions. 

1. The immediate effect of the sudden introduction 

of improved machinery is to throw some men out 
of employment. 

2. The least efficient are the ones who suffer most. 

3. After readjustment in the distribution of labor, there 

may be greater demand than before. 

4. Even if the use of machinery creates no new demand 

for labor and permanently lessens the amount of 

labor required to turn out the same amount of 

product the laborer will usually be benefited by a 

shortening of the labor day with no decrease in 

pay per hour. 

5. Error of lump of labor idea. The amount of labor 

to be done is supposed to be fixed, if part is done 
by machine, some laborer is out of work. 

6. The influence of machinery varies with the industry 

in which it is used. In some the capitalists reap 
the cheif reward, in others the laborers or land 
owners. There is no hard and fast rule as to who 
gains most. 

7. Improved machinery, where a monopoly does not 

exist, in the long run inevitably raises real wages. 



Forces that Influence Wages 107 

8. Machinery has produced the great social problems 
of city life requiring factory regulation, etc. 

III. DIRECT LEGISLATION. 
1. Minimum Wage Laws. 

(a) General minmum wage laws for a state or a nation 
appear to be impracticable in operation. 

(b) A minimum wage that would equalize local 
variations in the same occupation is possible and 
perhaps desirable where relatively uniform con- 
ditions of production prevail. 

(c) A minimum wage may be justifiable and advan- 
tageous where employers induce ignorant, unpro- 
tected workmen to accept wages lower than are 
normally paid by reputable employers in repu- 
table industries. 

(d) It seems evident that in case the minimum wage 
is fixed too high, so that it becomes unprofitable 
to hire laborers, it becomes the duty of the state 
to provide for the unemployed who have been 
thrown out of work. Municipal and public work 
would have to be used to furnish relief. 

(e) Minimum wage laws do not appear to be a feasible 
method of raising wages in general above the 
normal wage-level. 

(f) They tend to restrict investment in some indus- 
tries and force labor and capital into enterprises 
of relatively low productivity. 

IV. TRUSTS AND MONOPOLIES. 

(a) In so far as they raise prices of consumption goods 
they lower the real wages of labor. 

(b) They give the laborers less of a chance in the col- 
lective bargain. 

1. They lessen the chance of a successful strike. 

2. They maintain regular strike breakers. 

3. They may shut down any plant indefinitely with- 
out serious loss. 



108 Elementary Economics Manual 

(c) They cause excessive control over legislation which 
results in ''jokers" in all measures designed to ben- 
efit the laboring class. 

(d) Tend to restrict investment in some industries and 
tend to force labor and capital into relatively low 
productive industry. 

(e) So far as trusts really introduce more economical 
organization and methods of production they are in 
the long run beneficial to the laborer. 

(f) They may produce greater stability of industry and 
and tend to ward off crises. 

V. THE TARIFF. Two Arguments. 

(a) If wages are low, it is claimed that a tariff is needed 

to raise them. (Argued in early history of coun- 
try.) 

(b) If wages are high, a tariff is said to be needed to 
protect them against "pauper" labor in other coun- 
tries. 

(c) Conclusions. The influence of the tariff on wages 

has been greatly exaggerated in order to catch 
votes. High wages are not due to the tariff, but 
to efficiency of labor, land, and capital. In some 
industries a change in the tariff may produce 
stagnation and unemployment. 

VI. INFLUENCES OF METHODS OF REMUNERATION 
UPON REAL WAGES. 

1. Time wage. 2. Price wage. 3. The bonus or pre- 
mium plan, profit sharing. 4. Sliding scale. 5. 
The truck system (Company stores and supplies). 

VII. FORCES THAT TEND TO LOWER WAGES. 

(a) Institutions and laws that restrain the laborers' free- 

dom of movement and choice of occupation. 

(b) Unjust distribution of taxes^— indirect and many di- 

rect taxes bearing more heavily on the poor than 
on the rich. 

(c) Inflated currency systems. 

(d) Poor schools and lack of educational facilities. 



Forces that Influence "Wages 109 

(e) Obstacles to collective bargain. 

(f) Governmental administrative machinery used in the 

interest of the employing class. 

VIII. FORCES THAT TEND TO RAISE WAGES. 

(a) Frugality among laborers and capitalists. 

(b) Increase in the intelligence and efficiency of la- 

borers. 

(c) Moral qualities; self restraint, etc. 

(d) Favorable factory legislation. 

(e) Sympathy with and understanding of the labor 

problem in the community. 

(f ) Just tax laws restraining monopolies. 

(g) Trade school, and better educational systems gen- 

erally. 
(h) Dynamic standards of living in the laboring class. 
Read Taussig Chapter 52 x 54. 

Quiz Questions. 

1. Contrast real with nominal wages and compare with real 

and nominal expense of labor. 

2. Name in order of importance the chief institutions that may 

cause real wages to be low when nominal wages are high. 

3. Does a rapidly increasing population tend to force wages 

down ? Why ? 

4. Explain the Malthusian theory of population. 

5. If the Malthusian theory is correct, what effect will liber- 

al poor relief have on poverty in a nation ? On wages ? 

6. What has been the effect of free land on wages (a) in the 

colonial period, (b) today? (c) Explain Henry George's 
theory. 

7. Discuss the influence of machinery on labor: (a) The so- 

cialist view; (b) The optimist's view, and criticize each. 

8. Does machinery change real or nominal wages? How? 

9. Is it possible to have minimum wages fixed by law for all 

industries ? 
10. Have minimum wage laws been tried anywhere ? With what 
success? 



110 Elementaey Economics Manual 

11. Could a minimum wage law be enforced if the wage is too 

high to enable the employer to continue operating ? 

12. What is the nature of the minimum wage bill recently be- 

fore the legislature? 

13. Can an eight hour day be enforced in agriculture today? 

Are all industries adapted to an eight hour day ? 

14. What effect have capitalistic monopolies upon wages? (a) 

Upon real wages? (b) Upon nominal wages? 

15. Do trusts diminish the possibility of successful strikes? 

How? 

16. Does the tariff protect American labor? 

17. Trace the forces set in motion by the tariff and show their 

final effect on the laborer. 

18. What is a sliding scale of wages? In what industries is it 

generally used? 

19. What objections are there to a sliding scale of wages? 

20. In what industries would it be impracticable? 

Problems. 

A. What is the effect on wages of differences in danger, pleas- 

ureableness, social distinction, expense of preparation, 
with regard to any occupation? Cite examples of each. 

B. Can wages be permanently raised by laws fixing minimum 

wages? 

C. If women are paid less than men, why are men employed at 

all? 

D. Enumerate reasons why women's wages are less than men's 

wages for the same kind of work. 

E. Has the invention of machinery had any effect on the rela- 

tion of workmen to the master? On the length of the 
working day? 

F. Will a day's labor buy more or less today than twenty-five 

years ago? 

G. What advantage had the mediaeval serf over the modern 

mill hand? 

H. What advantage has the latter over the former? 



Forces that Influence Wages 111 

I. Are opportunities of workmen to rise to higher positions 
fewer than formerly? Why? 

J. What effect has our public school system on the comparative 
wages of skilled and unskilled laborers ? 

K. To what extent do the working classes gain from a fall in 
prices ? 

References : 

A. Seager, Introd. to Econ., P. 231. 
A. Laughlin in Atlan. Mo., CXII, 451. 

C. Abbott, Women in Industry, Ch. XIII. 

D. Nicholson, Prin. of Pol. Econ., Ill, 163-8. 

E. Marshall, Princ. of Econ., P. 255. 

F. Brand, Wage Earners Budget, 163. 

G. Ashley, Econ. Hist. Vol. I, Chap. I. 

H. Townsend, Warner, Landmarks of Eng. Ind. History, 

Chap. I. 
I. Marshall, Econ. of Ind., P. 122-126. 
K. Rogers, Work and Wages, Ch. VIII. 



CHAPTER XXIII. 

LABOR ORGANIZATION. 

I. DEFINITION AND CLASSIFICATION. 

1. Labor Union. 

2. Industrial Union. 

3. Trade Union. 

a. Local. 

b. National. 

c. International. 

d. Local Federation. 

a. Local unions are unions which include only members 

that live or work in one town or place. 

b. and c. National and International unions are made up 

of locals, each of which have local automomy to a 
greater or lesser degree and are joined together in 
the organization and government of the central 
body. The relation of the local to the national 
body is similar to the relation of the commonwealth 
to the federal government, 
d. Local Federations or Trades Councils, are organiza- 
tions that bind together local unions of particular 
cities or locations. 

II. GOVERNMENT. 

(a) Union constitutions define relation of locals to na- 

tionals and define the powers of the national or- 
ganization. 

(b) National codes. 

1. Penal codes provide penalties for unions that 
need to be disciplined. 

(c) The rules and laws of Local and District Councils, 

may contain provisions on anything not forbid- 
den by the federal constitution. 
112 



Labor Organization 113 

III. LABOR UNION COMMANDMENTS. 

1. Thou shalt not work for less than a standard wage. 

for only in this manner can our American Stand- 
ard of living and decency be maintained. 

2. Thou shalt rather suffer slight injustice at the 

hands of the union in which thou hast a vote 
than at the hands of employer who is an arbi- 
trary despot. 

3. Thou shalt not consume unclean goods — goods 

made by scabs and not bearing the union label. 

4. Observe the holidays and refrain from over-time 

that thy neighbor may also have holidays, and 
leisure. 

5. Honor the union and obey its commands, for it is 

better to break an engagement than to break a 
movement. 

6. Thou shalt not work beside or associate with a 

"scab," for by so doing thy own labor will be 
measured in terms of the price paid to the non- 
union worker. 

7. Thou shalt not steal thy neighbors job. 

8. Thou shalt not bear arms, or wear the uniform of 

the state, for militia and soldiery are instruments 
for the oppression of labor. 

9. If thy neighbor lays down his tools in a just cause, 

lay thou down thy tools also that justice may 
triumph. 
10. Thou shalt not use up more than a fair share of the 
demand for work. 

IV. PURPOSE OF LABOR ORGANIZATION. 

1. To secure through collective bargaining practical 

as well as nominal freedom and equality in the 
wages contract. 

2. By regular assessments to raise funds for union 

purposes, viz. : insurance and benefit schemes, 
strike funds, publicity, etc. 

3. To promote standardization of wages, methods of 

labor and length of labor day for groups of la- 



114 Elementary Economics Manual 

borers and educate them in co-operation and in 
conscientiousness of class solidarity. Standard- 
ization of apprenticeship. Standardization of 
wages, standardizaton of hours of labor — of out- 
put, and of conditions of work. 
4. To engage sometimes in politics and secure labor 
legislation. 

V. CLOSED SHOP POLICY. 

The closed shop issue represents a stage in the evo- 
lution of some industries, in others, like in build- 
ing trades, it is more permanent. 

A closed shop with closed union unjustifiable. A 
closed shop with an open union may be defended. 

Open or closed shops ; kinds. 

1. Real open shops, open to union and non-union men alike. 

2. Nominal open shops. (Really a closed non-union shop.) 

3. Real closed shops where none but union men are em- 

ployed. 

4. Nominal closed shops, where non-union men may be em- 

ployed under union conditions of work. 

Closed shop is not an issue. 

a. Where collective bargain is made for union and non- 

union men in an industry. 

b. Where compulsory arbitration prevails. 

c. Where bargains are made with monopolies or associa- 

tions or employers instead of a single employer. 

d. Where union is weak and needs to get members. 

VI. SOME ADVANTAGES AND DISADVANTAGES. 

Advantages. 

THE LABOR UNION. 

a. To the laborer : 

1. Strives to raise wages, shorten hours, improve condi- 
tions of labor by collective bargaining. 



Labor Organization 115 

2. Provides accident, sickness, funeral and out-of-work 

benefits. (Insurance.) 
2. Promotes social features. (A working-man's club.) 

b. To the employer : 

4. Brings together homogeneous group of workmen by 

establishing standards of skill. 

c. To the public : 

5. Is a training school for democracy. (Foreigner learns 

civics in union.) 

6. Is an Americanizing influence. Helps to assimilate the 

foreigner by improving his standard of life. 

Disadvantages. 

THE LABOR UNION. 

a. To the laborer: 

1. Tends to hold back the most efficient workman and to 

equalize the good and the bad. 

2. Often forces the laborer into strikes against his will. 

b. To the employer : 

3. Substitutes loyalty to union for loyalty to employer. 

4. Sometimes tries to run employer's business, control 

output, dictate methods etc. 

5. Sometimes opposed to efficiency, new machinery, and 

more up to date organization of working force. 

c. To the public : 

6. Causes stoppage of business, increased cost of living 

due to excessive wages (where union has monop- 

oly). 

7. Often causes agreement between union and employ- 

ers to raise prices to squeeze the public. 

8. Increases income of skilled labor, partly at expense of 

unorganized labor. 

Read Ely, Chapter XXIII; Taussig 1 , Chapter 57; Carlton, His- 
tory of Organized Labor, Chapter VI. 



116 Elementary Economics Manual 

Quiz Questions. 

1. Is the labor union an outgrowth of the mediaeval craft 

guild? See d, i, and k, p. 352. 

2. "What were the chief purposes of the Knights of Labor? 

3. "Why did the Knights of Labor decline in importance ? 

4. Contrast the character and purposes of the Knights of La- 

bor with the modern labor unions. 

5. Describe the government of a labor union. 

6. Does it resemble a confederacy, a federal government or an 

autocracy? 

7. Do labor unions have constitutions? 

8. Contrast a national with a local union with reference to or- 

ganization and government. 

9. Contrast a labor union with a trade union. 

10. Contrast labor and trade unions with industrial unions. 

11. How does a union enforce its laws? 

12. How is a man tried for violation of union rules ? "What is 

meant by being "unfair?" 

13. Is there any economic justification for labor organizations? 

14. How may trade unions discourage outsiders from learning 

trades? 

15. Explain the apprenticeship rules of some union. 

16. How do unions attempt to regulate wages? 

17. Discuss the attitude of labor unions toward overtime, short 

labor day, etc. 

18. What is their attitude toward piece work? Why? 

19. What is the union label? What is it for? 

20. What is the attitude of trade unions toward machinery ? 

21. What are the labor union views on restriction of output? 

22. Name the chief objects and functions of trade unions. 

23. Name the chief advantages and disadvantages of trade 

unions. 

24. What officials has the local union? A National organiza- 

tion? 

25. What is a closed shop ? How is the system enforced ? 

26. What are the causes for a closed shop policy ? 

27. Can the closed shop be defended? 



Labor Organization 117 

28. What relation is there between piece work and restriction 
of output? What theory of wages underlies the restric- 
tion of output practice? 

Problems on Union Policies. 

1. (a) If every union man should make a practice of break- 

ing every empty bottle he could lay his hands on, would 
his own well-being and the well-being of the glass 
blowers be improved immediately? In the long run? 

(b) If the glass blowers union had a closed shop and 
strict apprenticeship rules, how would it affect their 
well-being ? 

(c) Suppose every union were careful not to break bot- 
tles, so that the average service of a bottle were twice 
as long as at present how would it influence the wealth 
of the union men? Of the glass blowers? Why? 

2. (a) Is a closed shop more easily enforced in the building 

trades or in the cigar makers trade ? Why ? 

(b) Is a closed shop policy more easily enforced in a trade 
requiring a long period of apprenticeship or in one 
with a short period ? 

(c) Is a closed shop more general in a mixed trade, i. e. 
a trade using many different kinds and grades of labor, 
or in a trade in which but one grade of labor is em- 
ployed? 

3. (a) Suppose Wisconsin should establish a minimum wage 

of five dollars per day. What effect would it have on 
immigration into Wisconsin from foreign countries? 
From other states. 

(b) Would industries employing labor tend to multiply 
in Wisconsin as rapidly as at present if the minimum 
wage were lived at five dollars per day? 

(c) Would many old men find work with such a minimum 
wage? Why? 

4. (a) Compare the "lump of work" argument in its appli- 

cation to a closed union with monopolistic powers and 
to an open union where the monopolistic policy of the 
union is small. 



118 Elementary Economics Manual 

5. Should hours be shortened by the day or by the week? 

Should hours be shortened by giving a half holiday on 
Saturday or by working a shorter time each day? 
Should hours be shortened by establishing a maximum 
working day in all industries, on the farms, for cotton 
pickers, in pea-canneries or smelters? Why? 

6. What effect on the apprenticeship system of trades unions 

will the establishment of efficient public trade schools 
have ? Do unions generally favor this kind of schools ? 
Why? 

7. What is the union man's reason for working, in many 

cases, to limit the output of the workers in an in- 
dustry ? 

8. What is the tendency with reference to initiative, refer- 

endum and recall in English Unions? 



CHAPTER XXIIIA. 

INDUSTRIAL WAR. 

I. A STRIKE is the refusal of employees of one or more es- 
tablishments to work unless the management complies 
with some demand or refrains from taking some pro- 
posed action. 

II. A LOCKOUT is a refusal on the part of the management 
of one or more establishments to allow employees to 
work unless they comply with some prescribed condi- 
tion or conditions. 

III. A SCAB means an employee or sometimes an employer 

who has violated some union principle, with whom or 
for whom, members of the union are barred from 
working. 

IV. A BOYCOTT " is a common refusal on the part of a num- 

ber of people to deal with a person whose action is 
believed to be antagonistic to their interest." 

V. A CLASS STRIKE or a General Strike is a demonstration 
by large masses of laborers for the purpose of further- 
ing proletarian class interests. 

VI. SABOTAGE is a method of direct action employed by la- 
borers who are not on strike, whereby they con- 
sciously damage the interest of their employer either 
by bad quality of work, or by consciously injuring the 
tools or machinery of the employer, or in any other 
way by indirectly harming him or his interests. Ex- 
amples : (1) putting a handful of sand in a costly ma- 
chine ; (2) damaging a piece of furniture in such a way 
as to make it unsaleable; (3) working on a suit of 
clothes in such a way as to spoil it; (4) dropping cor- 
rosive acid on goods about to be sent to a customer; 
(5) changing the price cards on goods displayed, so as 
119 



120 Elementary Economics Manual 

to sell costly goods at a low figure ; (6) scattering seeds 
of weeds together with grain when at work on a farm, 
etc. 

VII. MEANS OF WINNING STRIKES. 

(a) By laborers: 

1. Boycott: Simple, when a group of laborers 

agree not to buy ; compound, when they en- 
list co-operation of third parties. (This is a 
conspiracy in the eyes of the law.) 

2. Unfair list or fair list. 

3. Picketing. 

4. Public opinion. 

(a) Favorable to strikers, viewed by the 

press and other agencies. 

(b) Expressed by ostracism of non-striker, 

publication of pictures of scab in un- 
ion papers, by refusal to associate 
with non-strikers, etc. 

5. Intimidation and violence. 

Illegal, and frowned upon by best unions. 

(b) By employers: 

1. Boycotts (blacklist) or white lists. 

2. Public opinion, control of press, etc. 

3. Organization of strike breakers. (Mutual strike 

insurance.) 

4. Injunctions. 

Arguments for. 

(a) The ordinary process of law is inade- 

quate. It is too slow, the officers 
of the law fail to enforce the law 
being dependent on voters for their 
office. 

(b) Some unions or strikers are irrespon- 

sible ; they cannot be reached by 
ordinary action at law, since no 
damages can be collected. 

(c) Property rights are fundamental; if 

they are broken down, the govern- 
ment is endangered. 



Industrial War 121 

(d) The judiciary of the United States is 

a court of last resort. It should 
take action where irreparable injury 
will result. 

(e) Injunctions are the only effective way 

of law enforcement during strikes 
under existing conditions. 

Argument against. 

(a) The constitutional guarantee of 

speedy trial by jury in state where 
offence is committed is abrogated. 

(b) A court is made an executive as well 

as a judicial body. 

(c) Blanket injunctions are particularly 

unjust. 

(d) Injunctions are more useful to prop- 

erty than to men. 

VIII. GENERAL CONSIDERATIONS. 

(a) Strike is a very effective weapon against an em- 

ployer who is engaged in competitive industry. 

(b) Strikes become less and less effective as employers 

combine and form monopolies and trusts. 

(c) There is a tendency to resort more and more to 

collective bargaining (brains) and less to strikes 
(physical force). 

(d) Strikes are becoming "business propositions" 

taking into account markets, situation of em- 
ployers and feeling of public, rather than sud- 
den outburst of feeling against what appears 
to be wrong, 

(e) Growth of strong unions results in fewer strikes 

and amelioration in conduct of strikers. 

(f) Unions need as never before intelligent, educated 

leaders. 

(g) Best union leaders constantly being drafted off 

into public service and into business enterprises. 



122 Elementary Economics Manual 

Quiz Questions. 

Carlton : History and Problems of Original Labor. Chapter VII. 

1. What is a strike? 

2. Is there any rule as to the recurrence of strikes? 

3. Classify the causes of strikes. What causes are most im- 

portant ? 

4. Is the union an organization to carry on strikes? 

5. Explain the attitude of labor towards violence in strikes. 

Is there any justification for violence? 

6. What is the effect on the success of strikes: (a) of trusts, 

(b) of employer's associations? 

7. Describe the organization and methods of protective em- 

ployer's associations. 

8. "The strike has been commercialized." Explain. 

9. Classify boycotts. 

10. What is an unfair list ? Contrast with a blacklist 

11. Discuss the attitude of courts towards strikes. 

12. Explain the origin, character and interpretation of con- 

spiracy laws ? 

13. What is the legal status of strikes in public service cor- 

porations? 

14. What is picketing? Is it legal? 

15. What is the attitude of labor towards injunctions? 

16. What are the objections to the use of injunctions? 

17. Compare the case of the Buck Stove & Range Company 

with that of the Danbury Hatters. 

18. Contrast the boycott with the union label. 

19. How might the union label be labor's "most powerful 

weapon?" 

20. Explain the chief features of the following strikes : The 

Anthracite coal strike of 1902; The McKee's Rocks 
strike; The Cloak & Suit Makers' strike in New York, 
1910. 

21. In what unions are strikes most likely to appear? 

22. What forces tend to make strikes less frequent? 

23. What is the effect on local strikes of a powerful national 

union organization with a full treasury? 



Industrial War 123 

Problems. 

(Cite page reference and authority consulted on each problem.) 

1. "What is the trend of judicial decisions in regard to sym- 
pathetic strikes? Are they lawful? 

2. Is picketing lawful according to judicial decisions? Is it 

lawful for a union to picket a grocery store and to per- 
suade people not to buy there? 

3. May employers lawfully use the blacklist, or the white list? 

Is the practice now contrary to law? 

4. Has an employer a right to discharge all his employees at 

any time, without other plausible reason, for violation of 
factory rules? 

5. Has a union a right to fine a member two dollars for failure 

to march in the parade on labor day? 

6. Is the "union label" an instrument of industrial war? If 

so, how is it used and with what results? 

7. What is meant by an eight hour day in the coal industry? 

8. Is it better to limit the number of hours per day or to limit 

the number of hours per week? Which is the better 
limit, nine hours per day or fifty hours per week ? 

9. Suppose the union laborers in the building trades succeed 

by strikes and other means in raising their wages from 
$2.50 to $4.50 per day and suppose that as a result build- 
ing costs are increased twenty-five per cent. What effect 
will this have on rents of newly completed dwellings? 
What effect will it have on rents of older dwellings? 
Who in the long run pays for the increase in wages ? The 
contractors? The house owners? The tenants? 

10. Suppose an employers liability and insurance law is passed 

involving an increase in building cost of three per cent. 
How is this paid? Who pays directly? Indirectly? 

11. Suppose weather conditions and business make it necessary 

for a worker in the building trades to be idle five months 
per year and a law is passed requiring employers to em- 
ploy the workers by the year and to pay them for tne 



124 Elementary Economics Manual 

enforced idleness as well as for the days actually em- 
ployed. How would this influence the relative well-being 
of workers in the building trades as compared with those 
employed in the factories? 



CHAPTER XXIIIB. 

CONCILIATION AND ARBITRATION. 

Definitions. 

I. ARBITRATION is* "the authoritative decision of an issue 
as to which the parties have failed to agree, by some 
persons other than the parties*" 

II. CONCILIATION is* "the discussion and settlement of 
questions between parties themselves or by their repre- 
sentatives who are themselves actually interested." 

III. MEDITATION is* " the intervention, usually uninvited, 

of some outside person or body — with a view to bring- 
ing the parties to the dispute together in conciliatory 
- conferences." 

IV. COLLECTIVE BARGAINING is* "the process by which 

the general terms of the labor contract, whether oral 
or written, are determined by direct negotiation be- 
tween employers or employer's associations, and or- 
ganized workingmen." 

V. THE NEWLANDS ACT. 

Scope., — Limited to employees engaged in train opera- 
tion, engineers, firemen, conductors, etc. Sections 1, 2 
and 3 provide for meditation and should meditation 
prove unsuccessful, sections 3-7 make provision for arbi- 
tration. One or two arbitrators shall be selected by 
each party to the controversy. The two or four thus 
selected choose a third, or the remaining two, provided 
they can agree within five days upon the man or men. 
In case they fail to agree, the Board of Meditation and 
Conciliation shall select a third man or, in case of six, 
the two men. Usually each side selects a representative 
who is one of their own officials. The burden of the 
decision therefore rests, in most cases, on the third arbi- 

*( Quoted from Eeport of Industrial Commission, V, XVII p. LXXV.) 

125 



126 Elementary Economics Manual 

trator, who must act as umpire between the other two. 
Section 4 provides for appeal from the decision of the 
arbitrators, provided a bill of exceptions is filed within 
ten days showing an "error of law apparent upon the 
record." The award is filed with the clerk of the Dis- 
trict Court of the United States, and after that either 
party has the right to appeal to the Circuit Court of 
Appeals, whose determination is final. 

No employee shall be required to render personal ser- 
vice without his consent and no injunction shall be 
issued to compel any employee to perform personal ser- 
vices against his will. 

Quiz Questions. 

Industrial War 

Carlton, History of Organized Labor. Chapter IX. 

1. How have large scale production and organized labor af- 

fected the character of labor disputes? 

2. Why should governments interfere in labor disputes'? 

3. Define and compare conciliation, arbitration and trade 

agreements. 

4. What provisions are there in the Federal law for arbitra- 

tion and conciliation? 

5. What is the experience of the various states as to arbitra- 

tion and conciliation? Cite examples. 

6. Discuss the causes for and working of the Anthracite Coal 

Commission of 1902. 

7. What is the position and importance of the National Civic 

Federation? 

8. Compare the aims and methods of the National Civic Fed- 

eration with those of the Citizen's Industrial Association. 

9. What are the advantages and defects of conciliation and 

arbitration as practiced in the United States? 

10. Describe the working of a trade agreement. Discuss some 

typical trade agreement. 

11. What are the conditions for the success of such agree- 

ments? 



Conciliation and Arbitration 127 

12. Describe the Canadian Industrial Disputes Act. To what 

extent is arbitration compulsory? Compare with the 
New Zealand methods. 

13. What criticism could be made of the Canadian Act? 

14. Compare voluntary with compulsory arbitration. What 

are the relative advantages and disadvantages of each? 

15. Illustrate from the working of the New Zealand Act the 

adantages and defects of compulsory arbitration. 

16. Point out the relation between compulsory arbitration and 

a legal minimum wage. 

17. What is a wage-board system? What are its advantages? 

18. Would compulsory arbitration be likely to succeed in the 

United States, having succeeded in Australia? 

19. What is the attitude towards compulsory arbitration (a) 

of employers (b) of organized labor? 

20. What agencies for industrial peace do we have in Wis- 

consin ? 

Problems. 

1. Cite industries in which collective bargaining is carried on. 

See k, n, o, p, q, y, s, a. 

2. Give an account of the contents of some joint agreements. 

See k, i, n, o, a. 

3. Describe the parties to a joint agreement. Whom do they 

represent? Have they full powers, or must their acts 
be ratified by their principals ? See a, 1, i, n, o, q, a. 

4. For how long are joint agreements binding? a, i, k, a. 

5. Contrast collective bargaining with conciliation and arbi- 

tration. See i, j, k, 1, y, z, a. 

6. Contrast voluntary with compulsory arbitration. See c, p. 

222, y, z, a. 

7. In what countries have the two schemes been tried? u, y, 

8. Explain the system in operation in France. See 1, a. 

9. Give an account of the Canadian Disputes Investigation 

Act. See i, p. 
10. Is compulsory or voluntary arbitration more promising for 
the adjustment of labor disputes in the U. S? Why? 
See s, w, x, y, z. 



128 Elementary Economics Manual 

11. What is the attitude of organized labor toward compul- 

sory arbitration? See e, p. 239, w, x, y, z. 

12. Are employees generally in favor of compulsory arbitra- 

tion? "Why? Explain fully the laborer's attitude. See 
w, x, y, z. 

References. 

a) Commons, Trade Unionism, pp. 195-222. 

b) Capital and Labor, pp. 179-252. 

c) Webb, Industrial Democracy, ch. III. 

d) Oilman, Methods of Industrial Peace, pp. 227-284. 

e) Mitchell, Organized Labor, pp. 337-346. 

f) Ely, Outlines of Economics, pp. 401-406. 

g) Clark, Labor Movement in Australia. 
h) Economic Journal, p, p. 1. 

i) Annals of Am. Acad, of Pol. & Soc. Sci. XXXVI, No. 2. 
j) Lowell, Industrial Arbitration. 
k) Ashley, Adjustment of Wages. 
1) Adams and Sumner, Labor Problems, 
m) Reeves, State Experiments in Australia. 
n) Annals Amer. Acad, of Pol & Soc. Sci. 27, pp. 510-516. 
o) Annals Amer. Acad, of Pol. & Soc. Sci. 27, pp. 531-9. 
p) McClure, 30: 149-56; 33: 515-9. 
q) Outlook, 89 : 296-301. 
r) Outlook, 94 : 774-6. 
s) Outlook, 94 : 526-30. 

t) Yale Review, May 1910, p. 32, Arbitration in Australia. 
u) U. S. Bur. Lab. Bui. 5: 457-548. Voluntary Council 

and Arb. in Gt. Britain. 

v) U. S. Bur. Lab. Bui. 12 : 124-190. Conciliation in the 
Stone Industry selections. 

w) Report U. S. Industrial Com. Vol. 14, introd. CXLI- 
CLIV. 

x) Report U. S. Industrial Com. Vol. 7, pt. 1, pp. 121-36. 

y) Report U. S. Industrial Com. Vol. 19, pp. 832-62, Col- 
lective Bargaining and Arbitration. 

z) Report U. S. Industrial Com. Vol. 17, introd. LXXIV- 

a) Report U. S. Industrial Com. Vol. 17, pp. 325-546. 

CXIII. 
(V) Quarterly Journal of Economics. 24: 660-712. 



CHAPTER XXIIIC. 

LEGISLATION AS A SOLUTION OF THE LABOR 
PROBLEM. 

I. THE JUSTIFICATION OF LABOR LEGISLATION. 

1. The weakness of the laborer in bargaining makes it 

impossible for him to have stipulations concerning 
conditions of labor, sanitation, safety, etc. in his 
wage contract. 

2. Ignorance and indifference of the average laborer con- 

cerning sanitation and safety apparatus make it im- 
possible for him to secure them even if it were 
feasible through his own initiative. 

3. The problem of the twentieth man. Nineteen em- 

ployers may be willing to make all reasonable im- 
provements, the twentieth employer holds out and 
often forces the other nineteen to conform to his 
harsh and primitive methods. 

4. The problem of the Sweatshop. Manufacturers who 

employ men, women and children long hours and 
under unwholesome conditions can often undersell 
competitors who have introduced shorter hours and 
better working conditions. 

5. Sources of Labor Legislation. Reforms through labor 

legislation have come through men of science and 
social reformers, administered by expert inspection 
administrative officials. 

6. Scope of Labor Legislation. Successful labor legisla- 

tion merely fixes the plane of competition and pre- 
scribes the metes and bounds of the bargaining 
which must take place between employers and em- 
ployees in fixing wages. 
129 



130 Elementary Economics Manual 

II. TREND OF RECENT LABOR LEGISLATIONS. 

1. Up to 1907 labor legislation, state and national, had 

taken the form of laws restricting the length of the 
labor day in state and federal employments, laws 
for the protection of the wages of employees of 
contractors engaged in constructing public works, 
and laws making stockholders liable for the wage 
debts of the corporations and laws giving married 
women control over their own earnings. 

2. In 1908 and 1909 the subjects most generally covered 

by state and federal laws were employers' liability, 
abrogating and modifying the common law de- 
fenses, women and child labor laws, prescribing 
conditions of employment, hours of labor — fifty-four 
hours per week laws etc. 

3. In 1910 special attention was given to workmen's com- 

pensation, retirement pensions and social insurance. 
Several state commissions for enforcing and ad- 
ministering the labor laws were created. 

4. In 1911 still more attention was paid to working- 

men's compensation with special reference to oc- 
cupational diseases. 

5. In 1912 legislature gave more importance to work- 

men's compensation and in several states laws pro- 
viding for accidents reporting were enacted. 

6. In 1913 the drift was toward wage regulation, mini- 

mum wages in certain occupations, support for de- 
pendent children, and state employment agencies 
or exchanges. 

III. DIRECT LEGISLATION. 

1. Minimum wage laws. 

(a) General minimum wage laws for a state or a 

nation appear to be impossible. 

(b) Minimum "real" wage, i. e. a wage that would 

equalize local variations in cost of living, is 
possible and perhaps desirable where rela- 
tively uniform conditions of production pre- 
vail. 



Legislation as a Solution 131 

(c) A minimum wage may be justifiable and ad- 

vantageous where employers induce ignor- 
ant, unprotected workmen to accept wages 
lower than are normally paid by reputable 
employers in reputable industries. 

(d) The claim is made that where the minimum 

wage is fixed too high so that it becomes un- 
profitable to hire laborers, it becomes the 
duty of the state to provide for the unem- 
ployed thrown out of work. Municipal and 
public work would have to be used as relief 
work. 

(e) Minimum wage laws do not appear to be a satis- 

factory method of raising wages in general 
above the normal wage-level. 

IV. CLASSES OF LABOR LAWS. 

1. Laws to protect Health and Life. 

2. Employers' Liability Acts. 

3. Laws Prescribing Time and Method of Wage Pay- 

ment. 

4. Laws Eegulating Length of Labor Day. 

(a) Eight and ten hour laws. 

(b) Sunday work laws. 

(c) Legal holidays, and Saturday half-holidays. 

5. Child Labor Laws. 

(a) Limiting hours of labor of children. 

(b) Limiting occupations in which children may 

be employed. 
(c) Truancy laws (compulsory education). 

6. Laws Eegulating Employment of Women. 

7. Trade Disputes Acts. 

8. Compulsory Insurance ; life, sickness, accident, old 

age, unemployment. 

9. Immigration Laws. 

10. Labor Exchange or Employment Bureau Acts. 
1. Minimum Wage Laws. 



132 Elementary Economics Manual 

Quiz Questions. 

LABOR LEGISLATION. 

Carlton, Chapter X. 

1. What is meant by laissez faire ? 

2. Explain the influences causing the American Constitution 

to embody the principle of laissez faire. 

3. Why have the American people been so averse to state inter- 

ference ? 

4. To what extent have modern conditions made laissez faire 

impossible? 

5. Is industrial legislation a violation of liberty? 

6. What do you mean by liberty? 

7. Is equality to be found in freedom of contract? 

8. How has labor legislation been allowed by the courts in 

seeming contradiction to clauses of the constitution? 

9. What seems to be the trend in the court's attitude? 

10. Illustrate this trend in the matter of working hours for 

women in factories? 

11. Why was England led to pass the first Factory Acts? 

12. What were the abuses which the Factory Acts tried to 

prevent? 

13. Describe the development of the English attitude towards 

labor organization? 

14. What are the chief forms of labor legislation in the States ? 

15. Upon what does the efficiency of such laws depend? 

16. What are the social as compared with the legal sanctions 

for labor legislation. 

17. Explain the different considerations arising in the limita- 

tion of working hours for (a) children, (b) women, (c) 
adult males. 

18. What constitutional objection is there to the legal regula- 

tion of the labor day? 

19. To what extent are the hours of adult laborers regulated 

in the States? How is such regulation justified? Illus- 
trate this from the cases of Holden vs Hardy and Lockner 
vs New York. 



Legislation as a Solution 133 

20. Could a law be passed preventing discrimination against 

union men? 

21. What is the common law doctrine of employers' liability? 

22. How is the working of employers' liability affected by (a) 

the fellow-servant doctrine (b) contracting out? 

23. To what extent do workmen suffer from a system of em- 

ployer's liability? 

24. Enumerate the defects of this system. 

25. Contrast workmen's compensation with employer's lia- 

bility. 

26. "What is the principle of the English Workmen's Compen- 

sation Act? 

27. Should the employer bear the whole burden of compen- 

sation. If so, why? 

28. Discuss the Wisconsin Employers' Liability Act. 

29. What is meant by compulsory insurance? What is such 

insurance chiefly for? 

30. Compare contributory and non-contributory insurance. 

31. What is the English law as to old-age pensions? 

32. Describe the German system of insurance against sickness. 

33. Describe the insurance and pension systems of the Inter- 

national Harvester Company. 

34. Point out the gains arising from workingmen's insurance 

from the point of view of (a) the employers (b) the em- 
ployees (c) society. 

35. What law does Wisconsin have for the protection of em- 

ployees? 



CHAPTER XXIIID. 

PRIVATE INITIATIVE AS A SOLUTION OF THE LABOR 

PROBLEM. 

I. CO-OPERATION. 

(a) Producers' Co-operation. 

1. Co-operative manufacturing establishments 

have not generally been successful. 

2. Farmers' co-operative cheese and butter fac- 

tories have been largely successful. 

3. Co-operative marketing of dairy products in 

Denmark. 

4. Co-operative marketing and advertising of 

fruit and to a less extent of grain in the 
northwest. 

(b) Consumers' Co-operation. 

1. Successful in certain classes in Germany, Eng- 

land and Denmark. 

2. Occasionally farmers' co-operative stores suc- 

ceed in U. S. 

3. Co-operative purchases of fertilizers and farm 

machinery successful. 

(c) Co-operative Insurance. 

1. Co-operative fire insurance companies gener- 

ally successful. 

2. Co-operative hail or cyclone insurance not 

generally successful. 

3. Co-operative life insurance moderately suc- 

cessful. 

(d) Co-operative Rural Credit. 

(e) Prerequisites of Successful Co-operation. 

1. Standardized, easily tested, staple commodi- 
ties. 

134 



Private Initiative as a Solution 135 

2. Area small enough for co-operators to know 

each other and their officers. 

3. Absence of efficient enterprising competitors 

with up-to-date business methods. 

4. Industries requiring little specialized, tech- 

nical, or business skill. 

5. Industries requiring relatively small amounts 

of capital. 

6. Relatively homogenous population with habits 

of thrift and willingness to take trouble for 
the sake of small economies in making pur- 
chases or sales. 

II. PROFIT SHARING AND STOCK OWNERSHIP BY EM- 

PLOYEES. 

(a) Sliding scale wage, by which wages vary with the 

price of the product. 

1. This is undesirable unless it is coupled with 

standard minimum rates below which earn- 
ings may not go. 

2. The system is impossible except in trades 

engaged in the production of staple products 
the prices of which are not subject to vio- 
lent fluctuations. 

(b) The bonus system, by which employees receive 

bonuses, varying in amount with the wages of 
the individual, whenever the output or profit of 
a plant exceeds some fixed amount. 

(c) U. S. Steel Corporation's plan of selling stock to 
the employees on favorable terms, and giving 
each holder of such stock a premium in addition 
to the regular dividend. 

III. THE HOUSING PROBLEM AND SOCIAL WELFARE 

WORK. 

(a) Company Houses. Advantages and disadvantages. 
G-ary, Pullman, Krupp, Germany. 



136 Elementary Economics Manual 

(b) Model houses by private semi-philanthropic organi- 

zations. 

(c) Semi-philanthropic associations for promoting home 

ownership by the laborers. 

IV. IMPROVEMENT OF PUBLIC HEALTH. 

(a) Pure food; pure water; pure ice; pure milk; etc. 

(b) Good system of sanitation. 

(c) Promotion of varied diet among poor. Better cook- 

ing and utilization of food products. 

V. INTELLECTUAL AND SOCIAL IMPROVEMENT. 

(a) Social settlements. 

(b) The function of private initiative in education; 

kindergartens, clay nurseries, trade schools, etc. 

(c) Wholesome, educational theatres, amusement halls, 

workingmen's club houses, clean press, the in- 
stitutional church. 

(d) Endowed parks, art galleries, etc. 

VI. INDUSTRIAL IMPROVEMENT. 

(a) Employment agencies. 

(b) Consumers' league. 

(c) Safe industrial insurance. 

(d) Legal bureaus, furnishing legal aid to laborers. 
(e) Philanthropic pawn shops. 

VII. CAMPAIGN OF EDUCATION OF WELL-TO-DO. 

(a) Elimination of graft and corruption in politics. 

(b) Creation of social standards of honesty, public 

spirit and helpfulness among rich. 

(c) Establishment of sane ideals and fashions among 

rich, leading to wiser expenditures by poor. 

(d) Substitution of social pleasures for narrow prviate 

consumption. 



CHAPTER XXIV. 

THEORIES OF INTEREST. 

I. PRODUCTION OR COST THEORIES. 

(a) Naive productivity theory. Capital helps in pro- 

duction. Capital is a productive power inde- 
pendent of labor, and produces a surplus for 
which its owner must receive a reward, interest. 
Criticism: Increase in quantity of goods does not 
necessarily mean an increase in value. A ma- 
chine derives its value from the goods it helps 
to produce, and does not give value to its prod- 
ucts. 

(b) Marginal productivity theory. Interest is measured 

by the value of the surplus product attributed 
to any given unit of the available stock of capital. 

II. ABSTINENCE THEORY. (The dominant theory of early 

English economists.) 

Labor-[-used up capital-|-raw material+abstinence in- 
volved in accumulating necessary capital=procluct. 
Interest is the wage of abstinence. Renunciation or 
postponement of gratification is an independent sacri- 
fice in addition to the labor sacrificed in production. 
The return for this renunciation is interest. Criti- 
cism : The laborer is not paid wages because he 
makes a sacrifice but because his products are valu- 
able, and in the same way the capitalist does not 
receive interest because he makes sacrifices in the 
accumulation of capital but because capital is helpful 
in the production of goods. Furthermore, much 
capital is accumulated Avithout any voluntary sacri- 
fice or renunciation on the part of anyone. Those 
who receive the largest returns on their investment — 
millionaries — frequently practice the least abstinence, 
whereas the man who abstains from satisfying physi- 
cal wants usually gets the lowest return. 
137 ' 



138 Elementary Economics Manual 

III. LABOR THEORY OF INTEREST. 

(a) Naive. Capital labors like human beings, and 

should receive a wage. 

(b) The Capitalist is a sort of social functionary. His 

services consist in the saving up or accumulation 
of private capital. 

(c) The Intellectual Process necesary to saving and 

accumulating capital must be paid for. This 
intellectual work is separate and distinct from 
the muscular work of capital production. 

IV. EXPLOITATION THEORY. 

Interest is withheld wages. (See chapter on Socialism.) 

V. THE TIME PREFERENCE THEORY OF INTEREST. 

A problem of valuation. 

Interest is a premium paid for present goods because 
present goods are, as a rule, worth more than future 
goods. Present goods possess a premium on future 
goods because : 

(a) The human mind is unable to realize future 

wants as vividly as present wants. 

(b) Most people are less well provided for in the 

present than they hope to be in the future. 

(c) Roundabout methods of production are gener- 

ally more profitable than direct methods. 

VI. There are three elements in the market rate of interest 
first, the time preference above mentioned, second, pay- 
ment for the risk involved in loans, and third, payment 
(often) for securing and managing loans. The time 
preference theory offers an explanation of the first ele- 
ment. The second element is determined by the char- 
acter of industrial society, the security of property, the 
stability of laws, and many other conditions, (harvests, 
panics, wars, etc.). The third element will vary with 
the nature of credit institutions, the kinds of loans 
available and the business ability of lenders. 



Theories of Interest 139 

VII. FORCES THAT TEND TO RAISE OR LOWER INTER- 
EST OPERATE THROUGH DEMAND AND SUPPLY. 

(a) The Supply of Capital in a country depends upon 
the general prosperity and thrift of the people ; 
upon the number of persons who control capital 
which they do not wish to employ in their own 
business ; and upon the absence of loans to foreign 
countries or persons. 
(d) Demand for Capital depends upon the density of 
the population, the skill and efficiency of the 
people, the inventiveness and enterprise of the 
people, and the extent and fertility of natural 
resources. 

(c) The rate in short time and call loans is determined 
largely by the credit situation, by the amount 
of bank reserves and the amount of actual cash 
available in the credit institutions of business 
centers. 

Quiz Questions 

1. Define interest. Compare loan interest with imputed inter- 

est. 

2. Interest is a payment for the use of money. Criticise. 

3. State the three real problems of interest. 

4. Is it true that capital produces interest? 

5. Is interest possible because, with capital, more goods are 

produced than without? 

6. "Why is interest possible ? 

7. To what extent will an entrepreneur make use of capital? 

8. Why is the supply of capital limited ? 

9. Does waiting involve a sacrifice? What sacrifice? 

10. Explain the difference between present and future values 

and their relation to interest. 

11. Would there be any saving without interest? 

12. What is marginal waiting? 

13. In what kind of goods would a borrower of $1,000 invest 

his money? Why should he be willing to pay $1,060 at 
the end of the year? 

14. In what ways is capital obtained? 



140 Elementary Economics Manual 

15. What is meant by the replacement of capital? What prin- 

ciples govern this? 

16. How is capital usually transferred from one industry to 

another ? 

17. In what way does the rate of turnover affect the invest- 

ment of capital? 

18. If a certain form of capital lasts only six months, how much 

value must it contribute to production to justify an in- 
vestment when the rate of interest is 6%. 

19. What determines the value (a) of new capital goods? (b) 

of capital once invested? 

20. Contrast free with specialized capital. Why is the distinc- 

tion important? 

21. What determines the rate of net interest? of gross interest? 

22. Point out the influences determining the demand for and 

supply of capital. 

23. What is the effect of increasing per capita wealth on the 

interest rate? 

24. Compare gross interest with net interest. 

25. What is a usury law? What is its effect on the rate of 

interest ? 

26. Name as many kinds of interest-yielding securities as you 

can. 

27. What is meant by collateral security? 

28. What is meant by double name paper? Why is it better 

than single name paper? 

29. Contrast a call loan with a farm mortgage. 

30. Classify investment securities. 

Problems. 

1. Suppose that the total amount of capital saved up in the 

past year is one hundred millions. Draw and explain a 
diagram illustrating the relative amount of sacrifice in- 
volved in the accumulation of each of the ten millions. 

2. (a) Suppose that a certain machine costing $1,000 lasts but 

eight months, how much value per annum must it con- 
tribute to the producer in order to justify its purchase 
when the rate of interest is 6%? 



Theories of Interest 141 

(b) Suppose present wants appear to the marginal saver to 
be twice as important as wants to be satisfied one year 
from now, what rate of interest will prevail? 

3. Other things being equal, in which place would you expect 

the interest rate to be higher and why? 

(a) In Mexico or Texas? 

(b) In a country inhabited by negroes or in one inhabited 
by Yankees ? 

(c) In a region in which prices have been steadily rising 
or in one in which they have been steadily falling for 
ten years? 

(d) In a country with a gold standard having in circulation 
$10 per capita or in a nation with the same standard and 
in which $50 per capita is in circulation. 

(e) In a new, sparsely settled, fertile country, or in an old, 
well settled, thriving region. 

4. (a) If a share of stock, par value $100, is expected to yield 

an average dividend of $4.00 per year and if it is sub- 
ject to a special tax of 40 cents per annum and if inter- 
est rates are six per cent, what is it worth? 

(b) If the interest rate should fall to five per cent would 
the share of stock increase or decrease in value? What 
would it now be worth ? 

(c) If money can be loaned at five per cent, compounded 
annually, what would be the present value of a non in- 
terest bearing note of $35,280 payable in two years from 
the present date. 

5. (a) If a broker should offer you a ten per cent bond for sale 

at par and should assure you that it was absolutely safe 
and first class in every way, would you believe him? 
Why? 

(b) If a broker offers you certain securities at par and 
guarantees two per cent per month interest, would you 
invest? Why? 

(c) For what class of persons is it better to invest in a 10 
per cent security involving some risk, than in a five per 
cent security involving no risk? 

(d) How high may interest on call loans go? Why? 



142 Elementary Economics Manual 

(e) How high may interest on absolutely safe, long time 
loans go in Wisconsin today? 

6. (a) If all human beings were suddenly changed into persons 

who could feel and realize future wants just as vividly 
as present wants would the supply of capital be more or 
less abundant than at present? 

(b) If, under the above conditions, additional capital would 
tend to increase the product in certain industries how 
would it in the long run effect the rate of interest? 

(c) If, under the conditions of paragraph (a) capital be- 
came too abundant to yield any net product, would in- 
terest be paid? 

1. On savings bank deposits? 

2. On loans to poor people on their household goods? 

3. On loans for purposes of consumption when the se- 

curity was strictly first class? 

7. Contrast the returns on a government bond with the returns 

on a farm mortgage with special reference to the following 
points : 

(a) Amount of return. 

(b) Ease of collection. 

(c) Possibility of law suits. 

(d) Taxes. 

(e) Insurance. 

(f) Stability. 

8. (a) If gold should be found in large quantities in the soil in 

and around Madison, how would it effect the prevailing 
local rate of interest immediately? In the long run? 

(b) How does a crisis affect the rate of interest? 

(c) Is a high rate of interest always a sign of prosperity? 
Under what conditions is it a sign of poverty? 

9. Classify in order of importance for investment purposes the 

following securities: Municipal bonds, mining company 
bonds, railroad bonds, state bonds, United States bonds, 
manufacturing company bonds, appartment house bonds, 
street railway bonds, farm mortgages. 

10. By aid of a financial paper make a list of securities, with the 
yield of each, which it would be wise for a widow to buy 



Theories of Interest 143 

if her fortune amounted to $10,000. Would a different 
distribution be made in the case of a business man with a 
fortune of $100,000 ? Why ? 

11. Does capital have value because its products are valuable or 
do the products have value because valuable capital is used 
in their creation ? Does capital always really earn interest 
or is interest a part of the value of the product imputed 
to the capital used in its production ? Is interest paid for 
the use of capital for the same reason that wages are paid 
for labor? 



CHAPTER XXV. 

PROFITS. 

Definitions. 

I. THE SURPLUS THEORY OF PROFITS. 

(a) Profit is differential surplus due to exceptional 

entrepreneurial ability or to exceptional oppor- 
tunities and is measured by the difference be- 
tween the returns of superior entrepreneurs and 
those of marginal entrepreneurs. 

(b) Marginal entrepreneurs may also receive a return 

which may be called necessary profits sometimes 
termed wages of management. This must be suf- 
ficient in amount to cover the cost of securing 
an adequate supply of managerial ability in in- 
dustry. 

II. RISK THEORY OF PROFITS. 

Profits are a payment for the risk assumed by the entre- 
prenuer. This element of risk is found in all capital- 
istic undertakings and in some in which no capital is 
used. In the latter case it must in the end be paid for 
by the consumer. 

III. NATURE OF PROFITS. 

Net income from business is called profit. Business in- 
volves the use of either land, labor or capital or com- 
binations of any two or all of them. 

IV. CLASSIFICATION OF PROFITS. 

1. Conjunctival or chance profits are due to unfore- 

seen favorable conjunctures in business. 

2. Speculative profits (commercial) are due to the pur- 

chase or sale of goods in anticipation of a change 
in price. 

144 



Profits 145 

(a) Legitimate or justifiable. 

1. Place Speculation or buying in one market to 

sell in another — "arbitrage." 

2. Time Speculation. Futures, options, puts, calls, 

etc., where speculator really assumes eco- 
nomic risks that some one else would have 
to bear. 

(b) Illegitimate Speculation. 

3. Market manipulation, cornsrs, wash sales, 

booms, etc. 

4. Gambling, bucket-shop operations, so-called 

"flyers" in the stock or produce exchange. 

3. Monopoly profits are obtained by means of partial or 

complete control of the supply or the demand of a 
given commodity or service, (a) legitimate, (b) 
illegitimate. 

4. Normal or necessary profits, is the remuneration for 

the efforts and trouble and risk that employers in- 
cur in the management of ordinary business enter- 
prises. 

V. FUNCTION OF THE SPECULATOR, (commercial.) 

(a) To secure to society lower and more stable prices 

by equalizing supply and demand. 

(b) To transfer the risk-taking function to men speci- 

ally trained and fitted to perform the task and 
to allow the merchant or manufacturer to devote 
himself exclusively to his special work. 

Quiz Questions. 

1. Contrast profits with interest. What is the business man's 

conception of profits? 

2. How are profits measured, by the year or by the turnover or 

how? 

3. What are the elements that go to make up profits ? 

4. What is an entrepreneur's wage? How is it fixed and how 

does it differ from an ordinary wage ? 

5. In what way is an entrepreneur a speculator? 

6. Compare managerial with speculative ability. 



146 Elementary Economics Manual 

7. What is the importance of speculation in industry ? 

8. What are the advantages and disadvantages of speculative 

gains as seen in competition? 

9. Compare chance gains with speculative gains. 

10. What determines gains of bargaining? 

11. What effect does competition have on profits in various in- 

dustries ? 

12. What determines monopoly profits? 

13. May monopoly profits arise while competition still exists? 

14. In what kind of business is good will most important? 

15. Does the entrepreneur get too much or too little for his 

services ? 

16. Contrast speculation with gambling. 

17. What is meant by sales on margins? 

18. What useful function does the trader perform if he buys 

wheat when it is cheap and sells it when it is dear? Ex- 
plain. 

19. What is meant by a short sale on the stock exchange? 

"Shorts rushing to cover?" 

20. Name some things regularly sold on the stock exchange and 

name others not generally dealt in, and explain what 
classes of goods naturally lend themselves to exchange or 
trading. 

21. Who are the "lambs" on the stock market? 

22. What is the difference between a promoter and an entre- 

preneur ? 

Problems. 

1. (a) In an old established branch of business or industry, 

the principles of which were thoroughly understood by 
most men interested in that line, would the pure profits, 
on the average, be a positive or negative quantity? 

(b) If money is loaned at 8% on a business involving con- 
siderable risk and if current savings banks rates are 5% 
should the extra 3% be considered as a payment for 
waiting or as a part of profits? 

(c) Is the essential feature in the return to the entrepreneur 
a payment for risk taking, for management or for both ? 

2. In each of the following cases, what part if any, of the profit 

gained is a payment for service to society? 



Profits 147 

(a) Two telephone companies which still operate separately 
but by secret agreement increase their rates 50% above 
those necessary to yield 8% net on the investment. 

(b) A fire insurance company. 

(c) The "bear" who sells wheat "short" for future de- 
livery. 

(d) The honest gambler who operates a roulette wheel and 
gains a profit of 10% of the stakes. 

3. A young man of great ability but without financial resources 

is just starting in as an entrepreneur. He finds that a 
combination in the ratio of X units of labor, Y units of 
capital and Z units of land yields maximum profits. "With 
this amount of each his net profits are $1,000 per year. 
With 5 X units of labor, 5 Y units of capital and 5 Z units 
of land he can make $4,000 per annum. "With 100 X units 
of labor, 100 Y units of capital and 100 Z units of land he 
could make $60,000, and so on. What limits the number 
of units of each which he will employ? 

4. A successful entrepreneur discovers that a composite unit 

consisting of X part of labor, Y part of capital and Zi 
parts of land is the most profitable ratio of combination 
and gives maximum net returns. By multiplying the 
composite units of this nature, he finds gross income and 
expenses to vary as follows: 



NO. UNITS 


COST PER UNIT 


VALUE ANNUAL 


EMPLOYED 


PER ANNUM 


PRODUCT PER UNIT 


50 


1,000 


250 


80 


900 


243 


90 


700 


409.50 


100 


600 


405 


150 


500 


375 


200 


400 


320 


250 


350 


262.50 



(a) How many composite units will he employ? 

(b) Will he cease employing new units when he has reached 
the point of diminishing productivity? Prove. 

(c) Will he cease employing new units when he has reached 



148 Elementary Economics Manual 

the point of diminishing net return per unit? Prove. 

(d) "Will he continue to employ new units as long as he can 
make a net profit on the average unit employed ? Prove. 

(e) Will he continue to employ new units as long as each 
new unit added continues to increase the net gain of 
the business? Prove. 

5. A farmer owns his farm of 80 acres for which he has re- 

cently paid $10,000. He rents 80 acres more of equally 
good land at $4 per acre per annum. He owns $5,00 worth 
of live stock and machinery. The buildings which were 
on the farm when he bought it are worth $4,00. His cattle 
are mortgaged for $1,000 and the farm for $5,500. In- 
terest rates are 6%. Until recently he has been engaged 
as foreman of a ranch at $900 per annum. His son helps 
with the work and he could earn $400 per year elsewhere. 
The farmer employs a hired man for six months at $40 
per month. The products of the year are sold for 3,800. 
Insurance and miscellaneous operating expenses other than 
interest or wages amounted to $500. During the year he 
bought his wife a new piano for $240 on monthly install- 
ments of $20 each, paying 7% interest on all balances due. 
Apportion the net book income of the farm among wages, 
interest, rent, entrepreneurial wage and pure profit or loss. 

6. A miller has contracted in August to deliver 1,000 barrels 

of flour in October at the then prevailing market prices. 
He buys 5,000 bushels of cash wheat at 96 cents to be used 
in his mill in order to fill the order, and to protect himself, 
hedges by selling short at $1.01, 5,000 bushels of October 
wheat for future delivery. If the elevator, interest and 
insurance charges on his August purchase are $200, and 
if he is able to cover his October wheat, by buying cash 
wheat at 90 cents, how much does the miller gain or lose 
on the transaction aside from milling profits? How 
much would he have gained or lost had he refrained from 
hedging? Suppose the above miller has to pay $1.07 for 
his cash wheat in October? 

7. Cotton manufacturers A and B bought five hundred bales of 

cotton each, at the prevailing prices. Three months later 
when their cotton cloth was marketed its price together 



Profits 149 

with the price of raw cotton had fallen 25'%. Manufac- 
turer A hedged when he made his cotton purchase and B 
did not. Was A a cotton speculator when he "hedged" 
or did B really speculate when he failed to "hedge?" 
Why? 

8. Is it possible to speculate in land? Is it possible to make 

"short sales" in land? Why? Are steel rails sold 
"short?" Are diamonds? Stocks? Gold? What are 
the characteristics of goods in which "shorts" are sold? 

9. Is a rise in price caused by speculation ever an advantage 

to society? e. g. eggs bought up by cold storage companies 
in the summer? Apples packed and stored by fruit com- 
panies ? 

10. What sorts of profits are most permanent? Profits based on 
monopoly? On realty? On ability? On artificial scar- 
city? On advertising? 



CHAPTER XXVII. 

TRANSPORTATION. 

Definitions. 

I. THE TRANSPORTATION PROBLEM involves 

(1) Discrimination in favor of some individuals, places, 
sections, industries, at the expense of other indus- 
tries, sections, etc. 

(a) By the foundation of large fortunes. 

(b) By the promotion of monopolies. 

(c) By the promotion of large scale production 

and geographical division of labor. 

(d) By an excessive political control over cities, 

states and sections. 

II. THE NATURE OF THE RAILROAD BUSINESS. 

(1) It is a business with relatively largely capital. 

(2) It is more frequently than in other lines of produc- 

tion, a business of decreasing expense per unit of 
service. 

(3) The principle of joint cost applies more generally 

than in other lines of business. 

(4) It is a business of partial or complete monopoly. 

(5) It is a business in which, in a rapidly developing 

community, unearned increment, or social surplus 
is relatively larger than in other productive en- 
terprises. 

(6) It is a Quasi-Public Business. 

(a) It exercises the right of eminent domain. 

(b) Early railroads are largely subsidized by 

cities, states, and the federal government. 

(e) Next to the banking business, it exercises 

the most far-reaching influence on all 
other class of enterprises. 
150 



Transportation 151 

III. CONTROL OVER TRANSPORTATION. 

1. Direct control. 

(a) Granger laws. 

(b) Direct rate fixing by legislation. 

(c) Taxation. 

2. Indirect control. 

(a) The chartering of rival lines and the attempt to 
secure competition. 

(b) State Railroad Commissioner (without much 
power) . 

(c) State Railroad and Public Utilities Commission. 

(d) Federal control. Interstate Commerce Commis- 
sion. 

(1) Interstate Commerce Act 1887. 

a. Prohibited unreasonable rates. 

b. Prohibited discrimination between 

persons, places and commodities. 

c. Causes fares and rates to be 

printed and made public. 

d. Caused no larger charges to be 

made for short , haul than for 
long haul. 

e. Prohibited pooling contracts. 

f. Created Interstate Commerce Com- 

mission. 

(2) Elkm's law in 1903. 

Made corporation as well as agent li- 
able for violation of law. Provided 
for more speedy trials and $1,000 to 
$20,000 fine for rebates or failure to 
publish tariffs. 

(3) Hepburn Act 1906. 

Included pipe lines, express com- 
pany's, etc., under "common car- 
riers." Enlarged the commission 
from five to seven members. Gave 
Commerce' Commission power to fix 
minimum rates as well as to declare 
certain rates unreasonable. Required 



152 Elementary Economics Manual 

uniform accounting. Prohibited the 
use of passes and made it unlawful 
for railroad companies to transport 
for sale any commodity in which they 
had a proprietary interest. 

(4) Mann-Elkins Act of 1910. 

a. Commerce court created. To en- 

force the orders of the Commis- 
sion. To try all cases of set 
aside orders of the Commission. 
To try all cases of rebating. To 
try all mandamus proceedings 
under the Commerce law. 

b. Enlarged the power of Commerce 

Commission so as to include tele- 
graph and telephone companies. 

c. Increased the Commission 's powers 

over rates. 

d. Strengthened the anti-rebating 

clause. 

e. Increased the power of the Com- 

mission in general. 

(5) The Clayton Act of 1914. 

a. Prevents one railroad company 

from holding stock in a rival 
line. 

b. Prevents interlocking directorates 

in railroads. 

c. Prevents railroads from dealing in 

securities, supplies or articles of 
commerce. 

d. Provides for the supervision of 

bids on construction and repair 
work for railroads. 
3. Government Ownership. 

IV. THEORY OF TRANSPORTATION CHARGES. 

1. Monopoly charge, i. e. "charging what the traffic will 
bear." 



Transportation 153 

2. Value of the service theory. 

(a) Value of a transportation service is sometimes 
measured by the difference between the price 
of a commodity at its point of shipment and at 
its destination. This method is defective be- 
cause if the freight rate is low enough and the 
supply of the commodity is large the amount 
would tend toward zero- — and conversely if 
the demand is intense enough and the trans- 
portation charge is high enough the value of 
the service would approach infinity. 

3. Cost of service theory. 

(a) Physical valuation is merely a part of the cost 
service theory of measuring railroad rates, it 
involves estimates of the value of the physical 
plant of a railroad company. It may be used 
as a basis for reasonable returns on stock and 
bond issues. Physical value, in itself, deter- 
mines only about one-fourth of the cost of 
service. The other costs involved are labor, 
raw material, repairs, etc. 

Quiz Questions. 

1. Give a classification of transportation facilities showing their 

scope and significance. 

2. What proportion of the railway mileage of the world is found 

in the United States? 

3. "What important differences are there between the transpor- 

tation business and other competitive enterprises? 

4. Why is transportation necessarily a monopoly? 

5. Why is there not competition where two or more lines run 

parallel to each other? 

6. What period is known as the competitive era in transporta- 

tion? 

7. How did the government strive to secure fair rates during 

this era? Are rebates always necessarily harmful? 

8. What is meant by a railway pool ? 

9. When was pooling first prohibited by law? 



154 Elementary Economics Manual 

10. "What bearing did the Anti-trust act of 1890 have on trans- 

portation ? 

11. Did it prevent one road from swallowing up another by 

lease ? Purchase ? Purchase of majority of stock ? Hold- 
ing company? 

12. Have anti-trust laws (state or national) checked the tend- 

ency to eliminate competition in transportation? 

13. Name the chief great railroad groups in the United States. 

14. To what groups does the C. & N. W. belong? The C. M. & 

St. P. ? The Great Northern ? 

15. Has the general level of freight rates gone up or down dur- 

ing the past forty years ? 

16. What has been the chief cause? A change in all rates or a 

change in a certain kind of rates? Why? 

17. Is expense a good criterion of just freight rates? Why? 

18. Is it correct to say that owners of railway investments 

ought to be given a fair return? Why a fair return? 

19. What is the cost basis of figuring reasonable rates ? 

20. Can the cost of carrying particular commodities be deter- 

mined? 

21. What is meant by group rates? 

22. Explain the "basing point" system? 

23. Name the chief lines of argument for private operation of 

railroads. 

24. Name the chief arguments for government ownership ? 

25. What two types of railroad commissions are there? What 

powers has each? 

26. Should railroads be regulated by the government? 

27. Name the four principal lines of regulation that have been 

tried ? 

Problems. 

1. The selling price of potatoes in Sparta is 25 cents per bushel. 

The retail price of potatoes in Madison is 80 cents per 
bushel. Expenses of handling at Madison are 15 cents 
per bushel. What would be the freight rates on potatoes 
from Sparta to Madison on the value of service principle ? 

2. A carload of household furniture will sell for $1,000 in 

Denver and $600 dollars in Madison. What should the 



Transportation 155 

freight rate be if you decide to ship your furniture from 
Denver to Madison, using the value of service principle? 

3. Assuming that it costs $8.00 per thousand to log and saw 

lumber on the Pacfic coast; and assuming that the amount 
capable of being obtained from a tract of land is five mil- 
lion feet; assuming, furthermore, that this lumber can be 
marketed in the east at $20.00 per thousand, and that the 
freight charges, exclusive of canal tolls, are $5.00 per thou- 
sand : compute the valuation of the land to the owner 
where no canal tolls are charged, and also where tolls 
amounting to $2.00 per thousand are collected by the gov- 
ernment from all vessels engaged in the coast-wise trade. 

4. Suppose the cost of logging and sawing lumber is as indi- 

cated and that the lumber men on the Pacific coast are 
ready to retail their lumber at the mill at $15.00 per thou- 
sand ; and assume further, that the freight and canal tolls 
are as above mentioned, what will be the price of lumber 
to the consumer in the East, in case canal tolls are charged, 
and in case the canal is free to coast- wise shipping? 

5. A. Suppose the transcontinental railroads allow shipments 

from Chicago to the Pacific coast at lower rates than from 
Denver to the Pacific coast, what effect will such freight 
rates have upon manufacturing and business enterprises in 
Denver ? 

5. B. Suppose that railroad freight rates are cheaper on oil 

from the Pennsylvania refineries to the Middle "West than 
from the Independent refineries located in the South, what 
effect will such rates have upon competition in the oil 
business? Upon monomoly? 

6. If railway freight rates from New York to Chicago are rela- 

tively lower than rates from Baltimore to Chicago what 
effect will such rates have upon the development of 
Baltimore as an importation center and what effect will it 
have upon large scale manufacturing enterprises in Balti- 
more? 

7. The average returns of railroads from freight in 1912 were 

68.7% of the entire gross receipts; returns from passenger 
service 23.7% ; returns from other sources 7.6%. On what 



156 Elementary Economics Manual 

branch of service is a railroad most likely to increase its 
charges in order to obtain more revenue? Give reasons 
why. 

8. What is meant by physical valuation ? What is the relation 

of physical valuation to the bonds and stocks of a railroad 
company ? What roles do interest on bonds and dividends 
on stocks play in computing cost of transportation service ? 

9. A railroad has a franchise worth $1,000,000. Should it be 

allowed to charge rates high enough to yield a reasonable 
rate of interest on this sum in addition to a reasonable re- 
turn on the capital regularly invested in the business? 
Should anything be allowed for going value? Why? 

References : 

(a) B. H. Meyer, Baihvay Legislation. 

(b) EG. R. Meyer, Government Regulation of Railway rates. 

(c) Stickney, Railway Problems. 

(d) Ripley, Railway Problems. 

(e) Locksmith, Elements of Railway Economics. 

(f) Amer. Economic Assn. Publication, 1903. 

(g) Seligman, Pol. Science Quart., II. 

(h) Interstate Commerce Commission Reports, 5 Vols., 1902. 
(i) Laughlin, Industrial America. 



CHAPTER XXVIII. 

INSURANCE. 

Definitions. 

I. INSURANCE is the equalization of losses, and the assump- 
tion of risk. 

1. Hazard means the degree of probability of loss 
and may vary from or impossibility to 100% 
or certainty. 

II. A MUTUAL INSURANCE COMPANY is one in which 
the members share each others' loss directly. 
(a) Mutual Insurance Companies Classification. 

1. Legal reserve, old line or level premium 

mutuals. 

Mutuals issuing guaranteed or closed con- 
tracts. 

2. Mutuals issuing open contracts. 

(a) Assessment life associations governed 

and managed like mutuals. 

(b) Fraternals that issue open contracts 

and may levy assessment in case 
they are short of funds. 

III. A STOCK INSURANCE COMPANY is one in which the 
policy holders share each others losses somewhat in- 
directly because the stockholders (as middlemen) by 
means of their capital assure the policy holders the pay- 
ment of their policies even though the losses are greater 
than normal. 

IV. AN INSURANCE CERTIFICATE is a statement certi- 
fying membership. The usual stipulations and agree- 
ments are found in the by-laws. 

V. AN INSURANCE POLICY contains stipulations and is 
a contract binding on both parties, 
157 



158 Elementary Economics Manual 

VI. AN INSURANCE PREMIUM is the amount agreed upon 
in advance, and based upon statistical data, to be paid 
by the policy holder periodically. 

VII. AN ASSESSMENT is usually the amount levied accord- 

ing to the experience of the company or society after 
the loss has occurred, although legally it may include 
fixed premiums where such premiums are not limited. 
Theoretically an assessment represents the policy 
holders' share of the actual losses incurred during or 
up to a specified time. 

VIII. WHOLE LIFE is paid at the death of the insured, to 

the beneficiaries. 

1. Ordinary Life Policy is one in which the payments 

are continuing during the entire life of the policy. 

2. Limited Payment Policy is one in which the period 

of premium payments is shorter than the life 
of the policy. 

IX. TERM INSURANCE is temporary insurance. 

1. Stipulated term of 5, 10, 15, or 20 years. 

2. To age of 50, 55, 60, 65, etc. 

X. ENDOWMENT INSURANCE is paid to the person- in- 
sured provided he survives a stipulated period, usually 
five, ten, twenty years etc., or to beneficiaries, should 
he die sooner. 

XI. REQUISITES OF A GOOD INSURANCE POLICY. 

1. Rates should be adequate and equitable. 

2. Should give thirty days of grace to pay premium. 

3. Should be non-forfeitable. 

(a) should provide for cash loans. 

(b) for cash surrender value. 

(c) for extended insurance. 

4. Should be incontestable after a reasonable time for 

any cause, except for non-payment of premiums. 

XIV. RESERVE is the policy holder's equity in all property 
except surplus of company similar to the balance on the 
pass book representing the depositor's equity in a sav- 
ings bank. 



Insurance 159 

XV. ECONOMICS OF INSURANCE. PROTECTION V. 
PREVENTION. 

1. Insurance is an institution, the chief function of 

which is the regular systematic assumption of 
economic risk resulting from uncertainty. Risk 
from fire may be eliminated : 

(a) by building fireproof buildings (great 

initial cost). 

(b) by paying a small sum annually to some 

one who agrees to replace the house 
should • it burn within the specified 
period. 
Both (a) and (b) are productive from the 
standpoint of economics. In many cases 
(b) is more productive than (a). It in- 
volves an increase of wealth since it de- 
creases the social cost of risk. Insurance 
does not decrease losses, but it distributes 
them and eliminates the additional loss, 
disutility, due to uncertainty. This pro- 
tection is a valuable service and must be 
paid for like other services or commodi- 
ties. Where risk of loss is very great, e. 
g. where a man has reached old age, the 
price to be paid is greater than where he 
is young and risk is less. 

2. Insurance creates time utilities. 

Essentials. 

(a) An insurable interest, i. e. an uncertainty 
that really involves a possibility of eco- 
nomic loss. 

(b) Actual loss by destruction (or disappear- 
ance from owner, e. g. insurance against 
theft) of economic goods or income or 
earning power. 

(c) Contract involving assumption of risk in 
return for consideration. 



160 Elementary Economics Manual 

3. Gambling 1 vs. Insurance. 

(a) The gain of one at the expense of another. 

(b) No assumption of risk or economic loss or 

destruction of goods. 

(c) No uncertainty as to property or income grow- 

ing out of industrial conditions but an arti- 
ficially created hazard originating in a bar- 
gain. 

4. Life Insurance based on mortality tables. 

A table furnishes the factor or function, qx where 
q=probability of dying in a year, and x=age, 
which shows the actual cost of carrying a risk of 
a unit amount such as $1.00 or $1,000 etc., at any 
age, for one year. Premium-j-interest — cost of risk 
=value (reserve). 

5. State power over Insurance. 

The sale of insurance is not interstate commerce, 
(see Paul vs. Va., 1869,) hence state government 
may regulate without violating the interstate com- 
merce clause of the constitution. 

XVI. CONTROL OF THE INSURANCE BUSINESS. 

No industry needs thorough, systematic and continuous 
control more than the insurance business. 

This is due to: (1) its highly technical nature, (2) the 
opportunities in it for fraud. Four stages of govern- 
ment regulation. 

1. Attempts to secure publicity of accounts begun by 

Massachusetts, 1807. 

2. Establishment of standard of solvency for insurance 

companies, 1858, Massachusetts. 

3. Establishment through law of the principle of policy- 

holders' equity in the company by fixing surrender 
value. Massachusetts, 1861. 

4. Attempt to secure by means of regulation economy 
of management, and the prevention of manipulation 

of insurance companies' assets, 1906, New York, 
and by a more stringent law in 1907 in Wisconsin. 



Insurance 161 

Quiz Questions. 

1. Contrast insurance with gambling. 

2. In what ways is insurance productive? 

3. Is the endorsement of a note insurance? Why? 

4. Explain a loan on bottomry such as was used in England 

in the 13th and 14th centuries. 

5. When did systematic fire insurance first begin? 

6. Contrast old line with assessment insurance. 

7. Name the chief kinds of fire insurance companies. 

8. Give a classification of old line life companies. 

9. Enumerate the different kinds of insurance which a person 

can buy at present. 

10. What data does a mortality table furnish ? 

11. What objection is there to the step-rate plan? 

12. What is meant by the "human factor?" 

13. What is meant by the "moral hazard?" 

14. What kind of companies frequently use this plan? 

15. Explain the level premium plan. 

16. Contrast the ordinary life with the limited payment plan. 

17. What is meant by term insurance? 

18. Contrast reserve with surplus. 

19. Prom what sources may a surplus be accumulated? 

20. Is an insurance company safe that has an adequate re- 

serve but has no surplus? 

21. Is a company safe with a large surplus but an inadequate 

reserve ? 

22. Contrast an endowment with a life policy. Criticise the 

text. 

23. Is a pure endowment policy very desirable for a policy 

holder who will save without any extraordinary stimulus ? 

24. What is industrial insurance? 

25. Contrast a participating with a non-participating policy. 

26. Name and characterize each of the four stages of insurance 

regulation. 

27. Against whom does the policy holder need protction in a 

stock insurance company? 

28. What particular kind of regulation do his interests require 

in a fraternal company? 

29. What is the chief danger in a mutual company? 



CHAPTER XXX. 

SOCIALISM. 

Definitions. 

I. SOCIALISM is a program for changing the present dis- 
tribution of wealth and income by substituting collec- 
tive for private ownership of capital, and social or state 
management of all business for the present competitive 
system. 

II. COMMUNISM is a more collective scheme which pro- 
vides for the abolition of private property rights not 
only of production goods but generally of consumption 
goods as well. 

III. ANARCHISM aims at the complete abolition of organized 
government, the partial or complete destruction of the 
fundamental economic institutions and the substitution 
of voluntary agencies for governmental compulsion in 
the maintenance of order. Anarchist writers — Proud- 
hon, Schmidt, Bakunin, Kropotkin. 

IV. SYNDICALISM is a type of socialism which hopes to gain 

its end — complete socialization of the instruments of 
production — by means of "direct action" and "sabo- 
tage." 

V. MARXIAN SOCIALISM— PRINCIPLES. 

1. Labor cost theory of value. 

(a) Commodities exchange in the ratio of their 

respective costs in terms of labor. 

(b) Commodities in which equal quantities of labor 

are embodied, i. e. produced in the same 
labor time, have the same value. 

(c) Intangible things like honor, a good name, a 

man's vote, have a price but no value. Their 
value is imaginary, not real. 
162 



Socialism 163 

(d) Skilled labor counts as multiplied unskilled 
labor in the value relation, one day's labor 
of an artist equals forty days labor of a 
bricklayer. 

Iron law of wages. 

(a) "Average wage is the minimum wage; i. e. that 

quantity of means of subsistence which is ab- 
solutely necessary to the production of labor 
power. ' ' 

(b) "Value of labor power equals sum of means of 

subsistence necessary to the production of 
labor power. ' ' 

(c) "Labor is paid for but not paid, involving in- 

creasing misery, oppression, slavery, degrada- 
tion and exploitation." 

(d) There is a constant increase of the "industrial 

reserve army," i. e., the army of the unem- 
ployed, forced to work at starvation wages. 
Exploitation theory of interest and profits. 

(a) "Capital is dead labor that, vampire-like, lives 

by sucking living labor and lives the more, 
the more it sucks." 

(b) Interest and profits are products of labor with- 

held from the laborer by capitalists who re- 
fuse to allow laborers to have access to ma- 
chines (capital), unless they consent to the 
extortion. 

(c) Aggregate interest and profits equals the aggre- 

gate of withheld wages. 

(d) The rate of interest is determined by the ratio 

of aggregate capital devoted to production. 

(e) The laborer is increasingly underpaid, so that 

he has less purchasing power, resulting in 
under-consumption and finally crisis. 
Exploitation increased with: 

1. Increasing length of labor day. 

2. Increasing speed and intensity of work. 

3. Increasing productivity of labor through 



164 Elementary Economics Manual 

greater division of labor and newer and 
better machines. 
4. Decreasing cost of labor by employment 
of women, children, etc. 

4. The materialistic interpreation of history. "Ideas 

are children who must be carried and who are not 
themselves able to bear burdens." 

(a) The history of each age is shaped by the eco- 

nomic life of the people, i. e. by the prevail- 
ing method of wealth production and distri- 
bution, and the material or productive forces. 

(b) "Slave production" gave rise to the political 

institutions, the art, science and religion of 
the classic world. 

(c) Serfdom and feudalism were the dominant 

forces in the middle ages. 

(d) Capitalistic production, i. e. the systematic rob- 

bing of the workman without machines by 
those who own the machines, is the dominant 
force in modern society. 

(e) Each force when it has fulfilled its mission 

gives way to the next. 

5. The doctrine of the class struggle. Wage workers 

of all nations, unite ! 

a) ' ' The one common fact in all past history is the 
exploitation of one part of society by an- 
other.'' 

(b) All history is the history of class struggles. 

(c) The slave insurrections in Greece and Rome, the 

peasant revolts in England, Germany and 
France, the rise of the bourgeois in the eigh- 
teenth century, and the proletariat movement 
today represent successive waves of attack of 
the exploited against the exploiters, 
(d) The last class struggle is on, the class-conscious 
organized proletariat against the soulless 
organized capitalist corporations. 



Socialism 165 

6. The revolution. 

(a) The laborers' condition deteriorates until they 

have nothing to lose but their chains and 
everything to win through revolution. 

(b) This revolution is but a stage in evolution, just 

as an avalanche is a part of gradual changes 
in nature. 

(c) This revolution is scheduled to appear as soon 

as the middle classes have been eliminated, 
leaving only "the robbers" and "the robbed" 
to face each other. 

(d) The protelariat will then seize the political 

power and exploit the exploiters. 

(e) After the social revolution will come the millen- 

nium—all men virtuous, happy, peaceful, in- 
dustrious and contented. 

VI. CRITICISM OF MARXIAN SOCIALISM. 

1. Theory of value. 

(a) Labor is one of the several elements that usu- 

ally determines value, not the only element. 

(b) A satisfactory theory of value must explain all 

exchange values whether they are tangible 
or intangible. To call some of them imag- 
inary, unreal values is dodging the issue. 

(c) To say that articles of great value involving 

small amounts of labor are the results of 
condensed labor is begging the question. 
Commodities like growing trees, that have 
involved no labor, are carefully excluded 
from the Marxian discussion of values. 

2. Iron low of wages. 

(a) Many socialists now admit that most laborers 

get more than subsistence minimum and that 
the condition of the laborer is not generally 
deteriorating. 

(b) Wages may fluctuate between two limits— the 

upper, which is the entire value of the 



166 Elementary Economics Manual 

product, and the lower, the subsistence mini- 
mum. Sometimes laborers may by monopoly 
methods get even more than they contribute 
in values. 

3. Surplus value. 

(a) Socialists often give too narrow a meaning to 

labor. Why is not the labor of the man who 
organizes great industries and takes great 
risks just as much "condensed labor" as that 
of the artist or skilled artisan? 

(b) The claim that interest and profits are all 

"withheld wages" is pure assumption. No 
proof is offered. 

(c) Increased use of capital, better organization, 

etc., mean progressive amelioration of the 
condition of the laboring classes rather than 
increasing misery. Laborers are most pros- 
perous in capitalistic countries and least 
prosperous in countries where capitalism has 
made least progress. 

(d) Exploitation theory contains an element of 

truth: Some profits are due to exploitation 
of laborers or of landowners, or both, e. g. 
monopoly profits, profits due to fraud, stock 
manipulation, etc., etc. Some of the profits 
of the English manufacturers during the last 
century, at the time Marx wrote, may have 
been due to exploitation. 

4. Economic interpretation of history. 

"A statesman can never alone by his own efforts 
accomplish anything ; he can only wait and listen 
till he hears the footsteps of the Almighty echo- 
ing through the changing events, then spring 
forward and grasp the end of His mantle — that 
is all." — Bismark. 

If the statesman fails to grasp the mantle of the 
Almighty at the opportune moment, the history 
of the nation is changed and its culture declines. 



Socialism 167 

(a) No completely worked out unified history based 

on materialism has yet appeared. 

(b) All modern historians lay more stress on eco- 

nomic forces and less stress on military affairs 
or political institutions. 

(c) To deny influence of constitutions, ideals or 

ethical forces on the affairs of men is pure 
assumption : no adequate proof is offered. 

(d) Applied socialism constantly ignores the ma- 

terialistic theories. "Why organize, why agi- 
tate, if material forces inevitably shape the 
affairs of men without human intervention? 
5. and 6. Class struggle and revolution. 

(a) Class struggle is not a normal phenomenon in 

evolution of industry. It is abnormal and 
exceptional, like disease in a person or war 
in a nation. 

(b) The general deterioration of the condition of 

laborers and an increased tendency toward 
revolution is contrary to the trend of history. 
Successful revolutions are not carried out 
by starving, oppressed laborers, but by pros- 
perous, individualistic, more or less inde- 
pendent classes. 

(c) The socialist theory that the ''Great Revolu- 

tion" will end all class struggle and produce 
stability contradicts the general theory of 
class struggle. 

(d) Marx over-emphasizes class struggles because 

he lived and wrote during the era of revolu- 
tions. The Socialistic theory of revolution 
really is a by-product of the 18th century 
philosophy of revolution. Evolutionary 
changes are much more effective than revo- 
lutions. 

VII. GENERAL CRITICISM. 

(a) Marxian socialists fail to take cognizance of the in- 
dependent, self-employed, self-directed laborer, 



168 Elementary Economics Manual 

and are primarily interested in wage labor. This 
is a one-sided, narrow conception of labor. 

(b) They exclude from consideration all productive 

effort that is not directed toward creation of 
commodities for exchange. This is a one-sided, 
narrow conception of the real problem of value. 

(c) They devote themselves almost exclusively to discus- 

sion of tangible, productive capital, and fail to 
consider commercial, loanable funds, the work of 
banks. This is a narrow, one-sided interpretation 
of capital. 

(d) The greatest concentration of capital has taken 

place, not through productive enterprises, where 
many laborers are employed and presumably (?) 
exploited, but in banking and commercial enter- 
prises, where few laborers are hired. 

(e) Socialism is a protest against the excessive laissez- 

faire policy of the 18th century. The tendency 
toward extreme individualism has been checked 
without, however, going to its opposite extreme. 

(f) For purposes of propaganda, socialists have made 

a fetish out of class conflict. They ascribe ex- 
aggerated importance to the class struggle. 

(g) The motives to industrial activity on which social- 

ists rely appear to be much too weak to take the 
place of the powerful motives operating under a 
system of private property. 

(h) Applied socialism would probably result in a most 
gigantic scramble for political power. The man 
with the political instinct will get the easy jobs, 
education for his children and high salary; the 
other fellow will do what he is told to do. 

(i) Individualism, one of the mainsprings of progress, 
will be partially destroyed, and will probably be 
displaced by tyranny more far-reaching than 
that exercised by the most absolute monarch in 
all Europe. 

(j) It appears to be almost impossible to establish fair 
standards of valuation of different economic 



Socialism 169 

goods without the present standards, established 
by competition, to refer back to. 

(k) It appears to be impossible to determine effectively 
how much labor time shall be devoted to con- 
sumers' goods and how much to the production 
of capital. 

(1) Socialism is a religion of discontent. The truth 
or fallacy of socialistic theory does not materi- 
ally affect the true believer. Some modern evo- 
lutionary socialists have discarded many Marxian 
theories and are becoming more and more politi- 
cal opportunists advocating those things that 
will catch votes. Many of these so-called soci- 
alist parties are socialistic in the Marxian sense, 
only in name. 

(m) With all its fallacies, Socialism has succeeded in 
awakening the laboring class and arousing it 
to political action. 

VIII. THE MODERN SOCIALISTIC MOVEMENT is inter- 
preted in an infinite variety of ways in modern so-called 
socialistic organizations. 

1. The evolutionary socialism represented in its 

mildest forms by the English Fabian Socialism, 
aims at a gradual extension of existing govern- 
mental institutions without actually engaging in 
political or industrial strife. 

2. The constructive reform socialists of Germany and 

in some sections of the United States devote 
their energy to practical tasks of economic or- 
ganization such as the establishment of co-oper- 
ative societies, the introduction of compulsory 
life insurance and educational enterprises of all 
kinds, etc. 

3. The "direct action" groups represented by the 
Syndicalists of France, denounce the method of 
parliamentary action and rely very largely on 
the ' ' General Strike ' ' as an instrument of reform. 



170 Elementary Economics Manual 

4. The extreme Revolutionary direct action party, 

represented by the Revolutionary Syndicalists 
of France and by the International Workers of 
the World of the United States, maintain that 
the modern state, no matter what party controls 
it, is always an instrument of oppression of the 
propertyless classes by the well-to-do, and that 
force should be used — blood and iron where 
necessary— to accomplish its overthrow. 

Problems. 

1. Define socialism and explain each part of the definition. 

2. Explain the Socialistic ideal of distributive justice. 

3. What other ideals of distributive justice are there ? 

4. What is a Utopian Socialist ? 

5. Who was Robert Owen? Name other representatives of his 

school. 

6. Compare Scientific with Utopian Socialism. 

7. What are the chief features of Marxian Socialism? 

8. Are all Socialists revolutionists? 

9. Compare the ideas of Jaure's with those of more advanced 

Socialists. 

10. What other varieties of Socialism are there? 

11. What is Communism— compare with Socialism. 

12. What is the Socialist attitude on competition? 

13. Discuss the advantages claimed for Socialism. 

14. Enumerate the chief weaknesses of the Socialist system. 

15. Contrast Socialism with Social Reform. 

16. Would the Socialists abolish interest? 

17. Would they abolish capital? 

18. Would they abolish private property? 

19. What is their theory of value? 

20. How does the Socialist movement stand today ? 

21. Where is it the strongest? In what industries? In what 

countries ? 

22. Compare Anarchism with Socialism. 



CHAPTER XXXI. 

AGRICULTURAL PROBLEMS. 

I. The relation of the state to the farmer. 
II. The credit institutions of the farmer: (a) National banks; 
(b) state banks; (c) land sharks; (d) co-operative credit. 

III. Educational facilities of the farmers' children. 

IV. Good roads. Rural mail delivery — socializing, anti-indi- 
vidualistic tendencies. 

V. The Fertilizer Trust, the Beef Trust, the Agricultural Ma- 
chinery Trust and the farmer. 

Quiz Questions. 

1. Is agriculture a centralized or a decentralized industry? 

2. Are there any limits to the size of an economic farm? 

3. Would a dairy farm with 2,000 cows be as profitable as 100 

small farms with 20 cows each? 

4. What forces tend to counteract intensive farming? 

5. Is there a trend toward intensive or extensive farming at 
present ? 

6. Cite illustrations of this tendency. 

7. Would a universal system of small holdings be desirable for 

a country? Why? 

8. Give two possible explanations or reasons for the general in- 

crease in tenancy in the United States. 

9. Is there a trend toward latifundia in this country? 

10. What effect has the increased value of farm land upon this 

tendency ? 

11. Why do farmers often have to use migrating, casual laborers 

who drift into the country during the harvest and then 
back to the cities? 

12. Is a farm mortgage a sign of poverty among farmers? 

13. How may agricultural credit be improved? 

14. What other lines of co-operation may the farmers develop? 

15. How do farmers generally market their produce ? 

16. What is the relative importance of the local and foreign 

market to the farmer? 

171 



172 Elementary Economics Manual 

17. What is the relation of the railway problem to the farmer? 

18. How does the stock exchange affect the farmer? 

19. What is the educational panacea for the farm problem? 

20. Explain the defects of the educational facilities of the Little 

Red Schoolhouse. 

References. 

(a) Taylor, Agricultural Economics. 

(b) World's Work— 18:12134 (Banks for all people). 

( c ) Westminster— 167 :673- '5. 

(d) World Today— 17:882- '3. 

(e) Land Banks— Fortnightly— 92:1079. 

(f) Jour, of Pol. Econ.— 17:92 (Fruit Growers' Crop). 

(g) World's Work— 13:8246 (Mail Order Houses). 

(h) Bliss, Cyclopedia of Social Reform, p. 374 (Raffeisen 
Banks) . 



CHAPTERS XXXII AND XXXIII. 

PUBLIC EXPENDITURES AND REVENUES. 

I. PUBLIC EXPENDITURES TEND EVERYWHERE TO 
INCREASE. 

Reason : 

(a) "Nationalism, Socialistic Experiments, and Ar- 

mament." Henry C. Adams. 

(b) "Social Sympathy." Bryce. 

(c) "Extravagance of democratic governments." 

Beaulieu. 

(d) "Technical progress and concentration of popu- 

lation in cities." Bastable. 

(e) "Growth of common needs and corresponding 

extension of public activities." Wagner. 

II. CLASSIFICATION AND DEFINITION OF PUBLIC 
REVENUES. 

a. Industrial receipts. 

Returns from enterprises of a quasi-industrial na- 
ture owned or operated by the state, e. g. public 
lands, water works, post office, etc. 

b. Credits. 

1. Government bonds. 

2. Treasury notes, etc. 

c. Special Assessments and Fees. 

Special assessments are levies on the owners of 
property in fixed local territorial districts for 
benefits accruing to the property as a result of 
public improvements ; while fees are levied on no 
class in particular, but on individuals, and are re- 
turns for any public benefits or services to the 
individual, whether they affect his personal prop- 
erty, real estate, or anything esteemed of value. 
In special assessments the total sum to be collected 
is absolutely fixed and determined upon before- 
173 



174 Elementary Economics Manual 

hand; while the revenue from fees depends on 
various circumstances, such as general prosperity, 
condition of markets, and so on. 

III. CHARACTERISTICS OF A GOOD REVENUE SYSTEM. 

(a) Equitable — burden fairly distributed, there is ab- 

sence of double taxation, etc. 

(b) Adequate — sufficiently elastic to meet the expand- 

ing needs of the state and yet not yielding a 
surplus revenue. 

(c) Well organized — it is a stable system, with clear 

differentiation of state, federal and municipal 
revenues, not an aggregate collection of unre- 
lated laws. 

Quiz Questions. 

1. Enumerate ways in which a state may secure revenues. 

What ones are in use in Wisconsin? 

2. Classify public revenues and explain the principle of classi- 

fication used. 

3. Contrast fees with public prices. 

4. Contrast special assessments with taxes proper. 

5. Do taxes tend to increase or decrease? Why? 

6. What method of fee collection should be used? 

7. Name four principles of just distribution of taxation. 

8. Is the principle that taxes should be equal and uniform 

defensible ? 

9. What principle of distribution do you accept? 

10. Contrast progressive with regressive taxes. 

11. Should taxes be levied according to the money income or 

according to the aggregate sacrifice involved? 

12. What objections are there to progressive taxes? 

13. In what way do expenditures of the government bear upon 

taxes? Illustrate by good roads, public schools, etc. 

14. What is meant by shifting of taxes? Name some taxes that 

may be shifted. 

15. How does mobility affect the shifting of taxes? 

16. May personal taxes be shifted? May taxes on rent be 

shifted? If so, how? 



Public Expenditures and Revenues 175 

17. Contrast the subject with the object of taxation. 

18. In what way are the purchasers of land exempt from taxa- 

tion on land? 

19. Enumerate the fallacies in the Single Tax theory of taxation. 

20. Explain the diffusion theory of taxation. Is every old tax 

good, and is every new tax bad ? Why ? 

Problems. 

(See end of the chapter in the text book.) 



CHAPTER XXXIV. 

THE SINGLE TAX 

(Reference; Outlines pp. 364-7, 595-8.) 

I. THE SINGLE TAX movement is a program of economic 
reform which plans to' take, by means of taxation, much 
or all of the economic rent now obtained by private 
owners. 

II. FUNDAMENTAL CONTENTIONS. 

1. The social origin of ground rent. 

2. The unshiftability of a land tax. 

3. The ultimate burdenlessness of a land tax. 

III. THE CLAIMS OF HENRY GEORGE AND OF THE 

SINGLE TAXERS. 

1. All men have equal rights to land because it was given 

by the Creator to the whole human race. No man 
has a right to own land. 

2. Equal right to land does not mean an equal division 

of all land among all people, but joint enjoyment 
of rent. 

3. Land value is chiefly site value; i. e. socially created 

value. 

4. Socially created value should be confiscated by society, 

not labor-created values, e. g. buildings and im- 
provements. 

5. Stocks and bonds should not be taxed because they 

are merely certificates of ownership of capital 
(which should not be taxed) or of land which has 
already been taxed. 

6. Privilege, i. e. law-given power, is said to be the basis 

of all rents now derived from land. 

7. Wealth is distributed through two channels: 1, 

wages; 2, privilege (landownership). 

8. If privilege, i. e. land-ownership, be abolished wages 

will be higher and prices fairer. The portion now 
176 



The Single Tax 177 

going to landowner would then flow to laborer. 
Wages would be increased fifty per cent or more. 
9. Every improvement in productive power tends to in- 
crease rents. 

10. By confiscating rents every improvement in industry 

would redound to the benefit of the laborers. 

11. Revenues derived from confiscating rents would be 

adequate to needs of society, and would grow as 
rapidly as the wants of society increased. 

12. Poverty would disappear because the chief cause of 

poverty (private property in land) would be elim- 
inated. 

Criticism. 
V. INJUSTICE. 

The landowner sometimes gets an unearned increment 
but other classes in society also receive unearned incre- 
ments, e. g. owners of Standard Oil stock, Western 
Union stock, Life Insurance Companies' stock, Rail- 
way stock, etc. It is unjust to single out the land owner 
and confiscate his surplus while letting others go. 

VI. PRACTICAL DIFFICULTIES. 
Single Tax: 

(a) Is difficult to administer; (b) is an inelastic tax 
and probably in the long run inadequate; (c) 
would make police control by means of taxation 
very difficult; (d) makes no provision for eases 
where aggregate real estate values in a commun- 
ity decline. 

VII. POLITICAL DEFECTS. 

If public revenues could be obtained from rents without 
taxation, it would take away the main incentive of the 
average citizen to participate in government, and it 
would probably mean the downfall of democracy. The 
worst despotisms in history have been based on the own- 
ership of land by kings. 



178 Elementary Economics Manual 

VIII. MANY PRINCIPLES OF SINGLE TAX THEORY 
SOUND. 

(a) That more of the unearned increment in land as well 

as in other lines should be taken by taxation. 

(b) That cities should secure the full franchise value 

from public utilities. 

(c) That lands around new public parks should be se- 

cured by cities so as to obtain the enhanced value 
due to parks. 

(d) That unused property held for speculation should 

be taxed proportionately higher than used land. 

IX. FALLACIOUS CLAIMS: 

(a) That it is an adequate solution of labor problems. 

(b) That it is an adequate solution of the problem of 

poverty. 

(c) That it is a good theory of national prosperity. "A 

patent medicine for ills of the body politic guar- 
' anteed to cure all and still be perfectly harmless." 

Quiz Questions. 

1. What is meant by the single tax? 

2. Contrast the application of the single tax theory with land 

nationalization. 

3. Explain three methods which the government might adopt 

for getting possession of all land. 

4. What method does Henry George advocate? 

5. What relations between property and poverty did Henry 

George try to discover in his book "Progress and Pov- 
erty?" 

6. Contrast the views of Henry George with those of the So- 

cialists, as to the chief causes of poverty. 

7. If it is in the interest of progress that all land should be na- 

tionalized, is there any reason why land now in private 
hands should not be confiscated ? 

8. If land is originally stolen property, i. e. stolen from society, 

would any present holder be justified in retaining it? 

9. What justification is there for private property in land? 



The Single Tax 179 

10. Would it be right for the government to take by means of 

taxation all the unearned increment of land? 

11. Do land owners pay as high taxes as other classes of property 

owners ? 

12. If the state collected in taxes all the economic rent of a 

piece of land, how much would it be worth to the owners? 

13. If it confiscated % the rent how would it affect the price ? 

14. What is the attitude of the single-tax toward public owner- 

ship of public utilities ; e. g. street cars, water works, etc. ? 

15. Would a single tax on land rent yield an adequate revenue? 

16. Does rent increase from year to year ? 

17. Have rents ever declined anywhere? Cite examples. 

18. What ethical objections are there to the single tax? 

19. What constitutional difficulties are there in the United 

States? 

20. What administrative difficulties are there in the United 

States ? 

21. Compare a tax which takes all rents, and a tax which takes 

all future unearned increments. May the latter be justi- 
fied even though the former is condemned ? 

22. How would a tax on future unearned increments be affected 

by a depreciating currency? 

23. Would the single tax if applied generally prevent land im- 

provement from being made? How? 

24. Would the single tax encourage improvements on farms? 

On city lots ? 

Problems on the Single Tax. 

1. Suppose that 20% of the gross ground rent were now taken 
in taxation and that the government should take an addi- 
tional 1% each year during the next fifty years, what 
effect would it have on land credits ? On the value of farm 
mortgages? On the wealth of the classes whose property 
consists largely of land? 

2_ A invests in 1904, $10,000 in bank stock of a newly organized 
bank, B invests the same amount in lands in a new sub- 
urb. At the end. of ten years A's stock is quoted at $225 
per share and B's land can be sold at $25,000. A has re- 
ceived on an average 12% in dividends during the entire 



180 Elementary Economics Manual 

time. B has received nothing in the form of rent but has 
paid for street improvements, sidewalks, etc., in addition 
to the regular taxes, on an average, $200 a year. B's 
property if improved would yield on an average $1,500 
per annum. What effect on the relative well being of A 
and B would a single tax system have, assuming that it 
was decided in 1914 that only 50% of the aggregate 
ground rents are needed to run the government? 

3. Assume that the bank stock and land values increase at the 

rate indicated in problem 2 and assume that the govern- 
ment in 1914 decides to take each year by taxation 50% 
of all increases in land values. What will be the effect 
on the value of A's property as contrasted with B's? 

4. If every land-owner has capital the value of which is 

exactly equal to the value of his land, how would a single 
tax, levied exclusively on ground rents, affect his well- 
being? If 75% of the land owners have three times as 
much land value as capital values, and 25% have ten 
times as much capital value as land value, how will the 
single tax affect the wealth of the two classes respec- 
tively ? 

5. May farmers be induced to resort to intensive cultivation 

by high taxes on farm rentals? How? May high taxes 
in cities cause owners of vacant lots to improve them? 
How? 

6. Suppose a lumberman owns a forest tract worth $25,000 on 

which he has a $20,000 6% mortgage. Suppose the state 
takes by taxation $1,500 a year— the total estimated rental 
returns for the tract. Will such a tax tend to promote 
conservation of the forest or will the trees be cut and sold 
as rapidly as possible? 

7. Suppose a person owns a $100,000 building on a valuable 

business site and suppose the estimated ground rent taken 
by taxation is greater than the net returns of the building 
and lot, what alternatives are open to the owner? 

Topics. 

A. Write an account of the methods of assessment and col- 
lection of the Prussian income taxes. 



The Single Tax 181 

B. Discuss the English income tax law with special em- 

phasis on its bearing on corporate income. 

C. Discuss the advantages and disadvantages of taxes, on 

checks, bills of exchange, deeds, mortgages and other 
similar transactions. 



References 



Seligman, Essays in Taxation. 

Walker, Political Economy. 

EGirsch, Democracy v. Socialism. 

Wallace, Land Nationalization. 

Shearman, Natural Taxation. 

George, Progress and Poverty. 

George, Social Problems. 

Ely, Taxation in American States and Cities. 

Adams, Finance. 

Fillebrown, A. B. C. of the Single Tax. 



CHAPTER XXXV. 

DISTRIBUTION OF THE BURDEN OF TAXATION. 

I. CLASSIFICATION. 
1. 



2. 



(a) 


Federal. 




(b) 


State. 




(c) 


Local. 




(a) 


Direct. 




(b) 


Indirect. 




(a) 


General property taxes. 


(b) 


Import and Export 


Duties, 


(c) 


Excise taxes. 




(d) 


Inheritance taxes. 




(e) Corporation taxes. 




(f) 


Income taxes. 




(g) 


Poll taxes. 





II. SHIFTING AND INCIDENCE. 

1. Shifting means the process of transfering the burden 

of a tax from one or more persons to those persons 
who purchase or use the comodity taxed. 

2. Incidence means the ultimate bearing of the burden 

by some point or person. 

3. The shiftability of a tax in a competitive industry 

depends upon the elasticity of the demand for the 
commodity or service on which the tax is levied. 

III. JUSTIFICATION OF TAXES. 

1. Confiscatory theory. The burden of taxation should 

be concentrated as much as possible on those classes 
of individuals who receive unearned incomes. (So- 
ciety should take what it itself has created.) Criti- 
cism : There is a difficulty in determining exactly 
what incomes are socially created, and further diffi- 
culty in segregating and confiscating them. 

2. Taxes are a species of insurance premiums paid by 

the individual to the government for protection and 
182 



Distributions of the Burden of Taxation 183 

other services it renders to him or his property. 
(Benefit theory.) This theory is not generally ac- 
cepted by economists although frequently used in the 
press and in political campaigns. 
3. Regardless of benefits, taxes should be levied according 
to the taxpayer's ability to pay. 

(a) The Proportional theory advocates that taxa- 

tion should not be used as a means of equal- 
izing the distribution of wealth. 

(b) The Progressive theory assumes that tax pay- 

ing ability increases faster than income, and 
that the rate of taxation should increase 
progressively. 

Quiz Questions. 

1. Contrast direct and indirect taxes. Give three definitions 

of indirect taxes. 

2. Enumerate the kinds of taxes used by the federal govern- 

ment. What ones are most important 1 ? 

3. Does a customs duty necessarily raise prices? Is it pro- 

tective if it does not raise prices? 

4. Enumerate the chief defects of our customs taxes. 

5. Contrast specific with ad valorem duties. 

6. What is an excise tax? May an excise tax be levied without 

the use of stamps ? 

7. Upon what commodities are excise taxes levied? 

8. Enumerate the defects of excise taxes. 

9. Name the chief advantages of excise duties. 

10. What is an income tax ? Have we ever had a federal income 

tax in operation? 

11. Why was the income tax of 1894 declared unconstitutional? 

12. What is the status of the federal income tax at present? 

How is it constitutional ? 

13. Have state income taxes been successful? Why? What 

difficulties are there with the state income tax ? 

14. Enumerate the chief features of the present income tax 

law. 

15. Discuss the advantages and disadvantages of the income tax. 



184 Elementaey Economics Manual 

16. Name occupations in which it is difficult to ascertain the 

income of the person. 

17. Explain in detail how you get at the income of a farmer. 

Would you deduct something for the use of the farmhouse ; 
for the farmer's vegetable garden; for the use the farmer 
has of his carriages and horses, etc. ? 

18. Are there any objections to a progressive inheritance tax? 

19. Enumerate the chief advantages and defects of inheritance 

taxes. 

20. Should inheritance taxes be levied by the state or the fed- 

eral government? 

21. In what way does the general property tax lack uniformity? 

22. How may a general property tax on land be evaded? 

23. "What are the chief sources of the frauds connected with the 

personal property tax? 

24. In what way is the personal property tax regressive ? 

25. Enumerate methods of reform of the general property tax. 

26. What kind of corporation taxes have we in Wisconsin ? 

27. Name the progressive features in systems of corporation 

taxation. 

28. Explain the chief objections to business and license taxes. 

29. What objections are there to poll taxes? 

30. Discuss double taxation and the overlapping of taxes be- 

tween states, municipalities and the federal government. 



CHAPTER XXXVI. 

Quiz Questions. 

1. Name three great ancient writers whose books contain dis- 

cussions of economic questions. 

2. What is the labor problem as these writers saw it? What 

was their attitude toward slavery? 

3. Was wealth or man or the State the most important thing 

in the philosophy of the Greeks? Contrast the attitude 
of modern economists with the Greek writers on each of 
the above. 

4. What was the attitude of the Roman writers toward interest, 

toward commerce, toward agriculture? 

5. What change in the economic ideas of the [Romans did 

Christianity bring about? 

6. What was the attitude of the early Christian fathers to 

property, to interest-taking, and to philanthropy? 

7. Why did the early Christians believe that trade was 

harmful ? 

8. Name some of the leading statesmen and writers who advo- 

cated the principles of mercantilism. 

9. What were the chief principles of the Mercantilists ? 

10. Who were some of the leaders of the Physiocratic school? 

11. Enumerate the fundamental principles of the Physiocrats. 
12'. Who was Adam Smith? What and when did he write? 

13. Enumerate the fundamental economic theories of Adam 

Smith. 
11. What principles in Adam Smith's teaching were along the 

line of laissez-faire? 

15. What role did man's self love play in the economic philos- 

ophy of Adam Smith? 

16. Name four of the leading writers of the classical school of 

economic thought. 

17. What is the fundamental principle found in Bentham's 

philosophy ? 

18. What is Malthus's chief contribution to economic thought? 

185 



186 Elementary Economics Manual 

19. Who was Ricardo, and what is his most important contribu- 

tion to economic thought? 

20. What role did the "Iron Law of Wages" play in Ricardo 's 

theory of distribution? 

21. What factor of distribution is a residual claimant according 

to Ricardo 's theory? 

22. Who was John Stuart Mill, and when did he live ? 

23. What is the difference between the laws governing produc- 

tion of wealth, and the laws governing distribution of 
wealth, in Mill 's economic theory ? 

24. Was Mill an inductive or deductive writer? 

25. Name some of the precursors of the modern socialistic school 

of writers. 

26. Who were the classical writers on socialism? 

27. What method did the Historical School use, and what con- 

tribution did it make to it make to economic theory? 

28. Who were the economic optimists? Explain why they were 

called optimists. 

29. Name three of the early American writers on economic 

subjects. 

30. What is the distinct contribution of the Austrian school, 

and what writers have been most successful in the devel- 
opment of these theories? 

31. What groups, or schools of economic thought exist at the 

present time ? Explain the chief characteristics of each. 



TOPICS. 

General Instructions. 

All collateral reading for the semester may be done in con- 
nection with these topics. Notes must be taken and topics con- 
structed in the form required by the instructor. Six topics are 
required during the semester. The last topic is due two weeks 
before the beginning of the examination period. Only a few of 
the best references are given here. The student is required to 
find others and to give a complete bibliography of all books and 
articles used, and at the beginning of each topic, the exact page 
and volume references must be put in the footnotes. For expla- 
nation of the Form G Topics, see p. 

Main Sources. 

1. General texts and references in Econ. Reading Room. 

2. Card catalogues in University Library. 

3. Poole's index and Readers' Guide to Periodical Literature, 

in Magazine Room Library. 

4. Congressional Bibliographies on many topics may be seen 

in the Document Room. Special permission may be se- 
cured to use the Government Reports in the Legislative 
Reference Library in the South Wing of the State Capitol, 
and is also available for special investigations. 

Abbreviations. 

(E. R. R.) Economics Reading Room. 

(L. R. L.) Legislative Reference Library. 

(D. R.) document Room. 

(H. L.) ^Historical Library. 

(U. L.) University Library. 

(U. L. S.) .University Library Stacks. 

(M. R.)__ .University Library Magazine Room. 

(122) Room 122 Library. 

I. Is the Henry George single tax preferable to a tax on un- 
earned increment of land in Wisconsin? Would either one or 

both be justifiable? 

187 



188 Elementary Economics Manual 

References : 

Davenport, H. J., Extent and Significance of Unearned 

Increment. Amer. Eeon. Review. Apr. 1911, 323. (122) 

Seligman, E. R. A., Recent Tax Reforms Abroad. Pol. 

Sci. Quarterly, XXVII 460-9, 586-604. (M.R.) 
George, Henry, Progress and Poverty. (U. L.) 
Johnson, E. H., The Economics of Henry George's Pro- 
gress and Poverty. Jour. Pol. Eeon. XVIII; 714 f. 
(M. R.) 
Fillebrown, C, The A. B. C. of Taxation 1-131. (U. L.) 
Garrison, F. W., The Case for the Single Tax. Atlantic 

Mo. Dec. 1913. (Not bound) (M. R.) 
Johnson, A. S., The Case Against the Single Tax. Atlantic 

Mo., Jan. 1914. (Not bound.) (M. R.) 
Seager, Henry, Introduction to Economics, 517-23. (U. L.) 
Bullock, Chas., Introd. to Study of Eeon. 494-500. (U. L.) 
Smart, ¥m., Taxation of Land Values and the Single Tax, 
p. 99-122. (U. L. R.) 

II. Should Wisconsin furnish cheap credit to the farmers? 
If so, how ? Would this be an injustice or a burden to residents 
of Wisconsin who are not farmers? 

References : 

Jacobstein, M., Farm Credit in a Northwestern State. 

Amer. Eeon. Rev. Sept. 1913, 598. (122.) 
Coulter, J. L., The Problem of Rural Credit in the U. S. 

Special Bulletin No. 1, Wis. State Board of Agriculture, 

Apr. 1913. (D. R.) 
Price, H. C, Farm Credits, Ann. Amer. Acad. 183-96, Vol. 

50, p. 183. (M. R.) 
Fay, Chas. R., Co-operation at Home and Abroad, 16-79. 

(U. L.) 
Wolff, H. W., People's Banks, (whole book). (U. L.) 
Wolff, H. W., Co-operative Banking— Its Principles and 

Practice, (whole book.) (U. L.) 
Wolff, H. W., A Co-operative Credit Bank Handbook, 1-20. 

(U. L.) 
Yoakum, B. F., The High Cost of Farming. W. Work, 

XXIV. 519-33. (M. R.) 



Topics 189 

III. Is co-operative marketing of farm products becoming 
more general? Is it desirable for all sorts of farm products? 

References : 

Welliver, J. C, Eliminating the Middleman. Munsey 
XLIX. 63-70. (M. E.) 

Fat, C. E., Co-operation at Home and Abroad, 180-90. 
(U. L.) 

Von Engelken, F. J., The German Farmer and Co-opera- 
tion, Sen. Doc. 201, 63 Congress, 1st Session. (D. E.) 
Ann. Amer. Acad. Vol. 50, several articles. (M. E.) 

Egan, M. F., Notes on Agric. Conditions in Denmark, Sen. 
Doc. 992, 62d Congress, 3d session. (D. E.) 

Corbett, L. C, Successful Methods of Marketing Vegetable 
Products, Yearbook Dept. Agric. 1912, 352-62. (D. E.) 

Holmes, Geo. K., Systems of Marketing Farm Products, 
Eep. 98, U. S. Dept. Agric. 9-32, 1666-279. (D. E.) 

Agricultural Co-operation and Rural Credit in Europe, 
Sen. Doc. 214; 63d Congress, 1st session. Use index. 
(D. E.) 

Note: Several of the above reports and others are found in 
the Economics Eeading Eoom. 

IV. Does the "Wisconsin Eailroad Commission fix the trans- 
portation charges of railroads, and the charges of public utili- 
ties ? If so, how ? 

References : 

Laws and Pamphlets concerning commission. (E. E. A.) 
Eeports of Eailroad Commission. (D. E.) 
Miscellaneous Information. (L. E. L.) 
For further information visit the E. E. Commission person- 
ally, east wing Capitol. 

V. How does Wisconsin attempt to solve its problem of un- 
employment? Its problem of industrial accidents? Its child 
labor problem? 

References : 

Laws and pamphlets concerning commission. (E. E. E.) 
Eeports of Industrial Commission, obtainable at offices of 
Commission, West Wing Capitol, (L. E. L.) 



190 Elementary Economics Manual 

VI. Contrast the powers and duties of the Wisconsin Tax 
Commission with the powers and duties of the earlier tax com- 
missioners. 

Eef erences : 

Laws and pamphlets concerning commission. (E. R. R.) 
Annual Reports of Tax Commission. (D. R.) 
Further information obtainable at office of Tax Commission, 
south wing Capitol. 

VII. Should the Stock Exchange and the Board of Trade be 
abolished? If so, why? If not, why not? 

References : 

Taussig, F. W., Prin. of Economics, I, Ch. 11 (U. L.) 
(E. R. R.) 

Hadley, Arthur F, Economics, Ch. IV. (E. R. R.) (U. L.) 
(U. L. R.) 

Van Antwerp, Wm. C, The Stock Exchange from Within, 
Chapters 1, 2, 3, 7. (U. L. R.) 

Selling Short, Munsey's XLVIII; 1026-8. (M. R.) 

Brace, H., The Value of Organized Speculation, Whole 
Book. (U. L. R.) 

Lovington, F., Social Interest in Stock Exchange Specula- 
tion, Econ. Journal, March 1913, (not bound.) (M. R.) 



XI. How does the Communist Manifesto attempt to solve the 
labor problem? 

References : 

Marx, Karl & Engles, Friedrich, The Communist Mani- 
festo. (Read and analyse the entire document.) (U. L. R.) 
Ensor, R. C. K., Modern Socialism, 35-37. (E. R. R.) 
Sombart, Werner, Socialism and the Socialist Movement. 

(E. R. R.) (TJ. L. R.) 
Spargo & Arner, Elements of Socialism, (cf. index under 
, Communist Manifesto.) (E. R. R.) (U. L. R.) 



Topics 191 

XII. The advantages and disadvantages of Socialism as a 
system of Distribution. 

References : 

Ely, R. T., Socialism and Social Reform, 116-37 ; 188-205 ; 
215-32. (E. R. R.) (U. L. R.) 

Cross, Ira, Essentials of Socialism, Ch. II. (cf. bibliog- 
raphy cited at close of chap. P. (E. R. R.) (U. L. R.) 

Spargo & Arner, Elements of Socialism. Clips. Ill, XIV, 
XV, (cf. bibliography cited.) (E. R. R.) (U. L. R.) 

Simkhovitch, V., Marxism Versus Socialism, Chapters II, 
IV, VII. (E, R. R.) 



TOPICS ON LABOR. 

I. The Open versus the Closed Shop. 

References : 

Ellis, G. H., Fallacy of the Closed Shop, Ann. Am. Acad., 

27, 517-20. (M. R.) 
White, Henry, Issue of the Open and Closed Shop, North 

American Rev. 180, 28-40. (M. R.) 
Bascom, John, An Open versus a Closed Shop, North 

American Rev. 180, 912-7. (M. R.) 
Makcosson, I. P. The Fight for the Open Shop, World's 

Work 11, 6955-65. (M. R.) 
Adams & Sumner, Labor Problems, 245-55. (E. R. R.) 
Taussig, E. W., Principles of Econ., II, 269-79. (E. R. R.) 
Commohs, John R., Labor and Administration, Ch. VII, 

U. L. Case 16. 

II. A Legal Minimum Wage. The Feasibility of its Estab- 
lishment. 

References : 

Boyle, James, The Legal Minimum Wage, Forum 49, 
576-84, (MR.) 

Webb, Sydney, The Economic Theory of a Legal Minimum 
Wage, Journ. Pol. Econ., 20, 973-98. (M. R. 

Kelley, Florence, Minimum Wage Laws, Journ. Pol. 
Econ. 20, 999-1010. (M. R.) 

Pigou, A. C, The Principle of the Minimum Wage, Nine- 
teenth Century, 73, 644-58. 

Ensor, R. C. K., The Practical Case for a Legal Minimum 
Wage, Nineteenth Century, 72, 264-76. (M. R.) 

Ryan, John A., Minimum Wages and Minimum Wage 
Boards, Survey 24, 810-20 (M. R.) 

Hammond, M. B., The Minimum Wage in Great Britain and 
Australia, Annals of Amer. Acad., 48, 22-36. (M. R.) 

Lindsay, S. M., The Minimum Wage as a Legislative Pro- 
posal in the U. S. Ann. Amer. Acad., 48, 455-33. (M. R.) 

192 



Topics 193 

Kellogg, Paul U., Immigration and the Minimum Wage, 

Ann. Amer. Acad. 48, 66-77. (M. R.) 
Clark, John B., The Minimum Wage, Atlantic Mo., Sept. 

1913, 289-97. (M. R.) 
Holcombe, A. N., Legal Minimum Wage in the U. S., Amer. 

Ee. Rev. II, 21-37. Lib. (122.) 
Taussig, F. W., Prin, of Econ., II, 297-302. (E. R. R.) 

III. The Economic and Social Effects of Race Immigration 
into the United States. 

References : 

Carlton, F. T., History and Prob. of Organized Labor, 

Ch. XI. 
Commons, J. R., Races and Imynigrants in America, 107-34, 

135-59, Ch. V and VI. 
Fairchild, H. P., The Paradox of Imigration, Amer. Jour. 

Soc. XVII, 254-67. (M. R.) 
Fetter, F., Population or Prosperity, Amer. Econ. Rev., 

March 1913, Supp. 5-17. (122.) 
Ross, E. A., Articles on Immigration, Century, Nov. and 

Dec, 1913, Feb., July, Aug., Sept., 1914. (M. R.) 
Jenks, J. W. & Lauck, W. J., The Immigration Problem, 

see index. (U. L.) (E. R. R.) 
Warne, F. J., The Immigration Invasion, see index. (U. L.) 

IV. Seven Hour Labor Day. Would the Establishment of a 
Seven Hour Day Raise or Lower Real Wages? 

References : 

Carver, T. N., Distribution of Wealth, Ch. 4. (E. R. R.) 

(U. L. R.) 
Moore, H. L., Laws of Wages, Chap. III. (U. L. R.) 
Thompson, H. M., The Theory of Wages, 1-11, 81-114. 

(U. L.) 
Webb & Cox, The Eight B\our Day, Chap. IV. (U. L.) • 
Symes, J. E., Some Econ. Aspects of the Eight Hour 

Movement, Econ. Rev. I, 51-56. (M. R.) 
Blanchard, J. T., The Eight Hour Question, Westm. Rev. 

CXXXIX 527-553. (M. R.) 



194 Elementary Economics Manual 

V. Is Compulsory Arbitration Feasible? 

References : 

Adams, T. S. & Sumner, Helen, Labor Problems, 319-31. 

(U. L.) (E. R. R.) 
Bliss, Wm., New Encyc. of Social Reform. Arbitration. 

(M. R.) 
Clark, Victor S,, Labor Legislation in Australia and New 

Zealand, Ann. Amer. Acad., XXXIII 440-7. (M. R.) 
Eldershaw, P. S., Industrial Arbitration in Australia, Ann. 

Amer. Acad. XXXVII 203-21. (M. R.) 
Clark, Victor S., The Labor Movement in Australia, 154- 

245. (U. L.) 
Le Rossignol, J. E., State Socialism in New Zealand, Cli. 

XtfI,XIII,XIV. (U. L.) 

VI. "Our Present Feudalism." Employers' Welfare — It 
Wage Bargaining Sufficient? Is there not need of positive 
leadership on the part of the Employer? Is that undemocratic? 

References : 

Tolman, W. H., Safety, Ch. 22 and 23. 

Meakin, B., Model Factories and Villages, Ch. 3, 4 and p. 

382-415. 
Cadburg, E., Experiments in Industrial Organization, p. 

92-125, 200-220, 273-281. (U. L.) 
Hendricks, B. J., Children of the Steel King, McClure's, 

Sept. 1913, 61-69. (P. R.) 
George, W. L., Labor and Housing at ParJc Sunlight, Ch. 8. 

(P. R.) 

VII. The Growth in Federal Control over the Railroads of 
the United States. 

References : 

Johnson, E. R., Elements of Transportation, Chs. 16, 17. 

(E. R. R.) (U. L.) 
Ripley, W. Z., Railroads, Rates and Regulation, Chs. 13, 14, 

15, 16, 17, cf. table of contents. (E. R. R.) (U. L.) 



Topics 195 

VIII. Employer's Liability and Workingmen's Compensation 
Acts. Advantages and disadvantages. 

References : 

Adams & Sumner, Labor Problems, 478-88. (E. R. R.) 
Commons, J. R., Trade Unions and Labor Problems, 546-73. 

(U. L.) 
Pamphlets and Reports of Wis. Ind. Comm. on Working- 
men's Compensation Acts. (E. R. R.) 
Cf. Reader's guide to periodical literature for numerous 

additional references. (E. R. R.) 

IX. Compulsory Industrial Insurance. The advisability of its 
establishment in Wisconsin. 

References : 

Henderson, C. R., Industrial Ins. in the U. S., 1-62, 307-22. 

(U. L.) Case 16-3. 
Frankee & Dawson, Workingmen's Insurance in Europe. 

cf. table of contents, especially chs. 7, 11, 15, 17, (U. L.) 

16-4. 
Lewis, F. W., State Insurance, cf. table contents. (U. L.) 

16-4. 
Rubinow, I. M., Social Insurance, Table Contents. (E.R.R.) 
Seager, H. R., Social Insurance, Table Contents. (U. L.) 

12-5. 
Dawson, W. H., Social Insurance in Germany, Table Con- 
tents. (E. R. R.) 
Adams & Sumner, Labor Problems, 488-92. (E. R. R.) 
Taussig, F. W., Prin. of Econ. II, 323-40. (E. R. R) 
Commons, J. R., Trade Unionism and Labor Problems, 574- 
602. (U.L.) 

X. "The Child that Toileth Not"— Is Dawley right in his 
conclusions ?— If not, why? What larger considerations does 
he leave out? 

References : 

Dawley, T. R., The Child That Toileth Not, Ch. 7, 10, 12 
and 19. (U. L.) 



196 Elementary Economics Manual 

Debaters' Hand-Book on Child Labor, p. 175-185, 190-196, 

54-68. (U. L.) 
Child Labor Bulletin, May 1914, p. 20-33, 85-89. (P. R.) 
Spargo, J., The Bitter Cry of the Children, p. 195-217. 

(U. L.) 
Nearing, S., Social Adjustments, ch. 13. (U. L.) 
Mangold, G. B., Child Problems, p. 191-200. (U. L.) 

XL Unemployment — The Evil of it and the Remedy — Is an 
Unemployment Insurance Practicable? 

References : 

Commons, J. R., Trade Unionism and Other Problems, ch. 

27 and 28. (U. L.) 
Clark and "Wyatt, Making Both Ends Meet, ch. 3. (U. L.) 
Jackson, C, Unemployment and Trade Unions, ch. 2, 3 and 

4. (U. L.) 
Devine, E. T., Report on Desirability of Employment Bu- 
reau in New York City, p. 29-34. (Glance over the rest.) 

(U. L.) 
Bulletin of the Industrial Commission of Wisconsin, vol. 

2, No. 9. (D. R.) 
Beveridge, W. H., Unemployment, a Problem of Industry, 

ch. 9. (W. L.) 
Schloss, D. F., Insurance Against Unemployment, p. 27-49, 

p. 72-81. (U. L.) 

XII. Joint Agreements Bewteen Capital and Labor. Where 
have such agreements been successful? Where have they 
broken down? In both cases, why? 

References : 

Commons, J. R, Labor and Administration, ch. 15. (U. L.) 
Commons, J. R., Trade Union and Labor Problems, ch. 1, 2 

and 4. (U. L.) 
Hollander and Barnett, Studies in American Trade 

Unionism, ch. 6 and 8. (U. L.) 
Fitch, J. A., The Steel Workers, Pittsburg Survey Ch. 

(U. L.) 



TOPICS ON CURRENCY. 

BANKING AND INVESTMENTS. 

I. The Elements of our Currency. 

(a) History, (b) Description of each. 

References : 

Watson, D. K., History of American Coinage, 339-58. 

United States Treasury Dept. Circular 52. 

Putney, A. H., Currency, Banking and Exchange, 151-169. 

II. The Silver Question. 

References : 

Taussig, Silver Situation in the United States, 1-71. 
White, Money and Banking, 167-193. 
Indianapolis Monetary Com. Report 1898, 138-145. 

III. Bank Statements. Explain a National Bank's Statement 
as to composition of items and their relation to the strength or 
solvency of the bank. 

References : 

Scott, Money and Banking, p. 147. 
White, Money and Banking, 205-216. 

VI. The National Banking System. 

(a) Origin. 

(b) Causes. 

(c) Special functions. 

(d) Changes it introduced into the banking and cur- 

rency system of the U. S. 

(e) Subsequent development. 

References : 

Indianapolis Monetary Convention Rep., 1898, 187-223. 
Putney, A. H. Currency Banking and Exchange, 230-250. 
Hepburn, A. B. 3 Contest for Sound Money, 320-63. 

191 



198 Elementary Economics Manual 

Davies, A. M., Origin of the Nat 'I Banking System, 1-112. 
National Monetary Commission's Report. (D. R.) 



V. The Trust Company. 

References : 

Cleveland, Funds and their Uses, 256-264. 

Bolles, A. S., Money, Banking and Finance, 287-294. 

Kjrkbinde & Sterrit, Modem Trust Co., 1-14. 

VI. The Savings Bank. 

References : 

Cleveland, Funds and Their Uses, 209-229. 

Bolles, A. S., Money, Banking and Finance, 231-269. 

Hamilton, J. H., Savings Institutions, 149-223 ; 429-432. 

VII. The Functions and Operations of a Commercial Bank. 

References : 

White, Money and Banking, 193-205. 

Trust Companies Magazine, Vol. 1, p. 17. Room 121, Lib. 

Cleveland, Funds and their Uses, 240-255. 

The Currency Problem," Columbia Univ. Press. 1908. 3-18. 

Putney, A. H., Currency, Banking & Exchange, 173-183. 

Dunbar, Theory 8c History of Banking, 1-66. 

Fiske, The Modern Bank. 

VIII. The Independent Treasury System. 

(a) Origin. 

(b) Subsequent development. 

(c) Effect of the New Currency law. 

References : 

Kinley, D., The Independent Treasury System, etc. 
Pratt, S. S., The Work of Wall St., Chap. 17. 
Cleveland, F. A., Funds and their Uses, Chap. 9. 



Topics 199 

IX. The Panic of 1907. 

(a) Causes. 

(b) Panic conditions. 

(c) Methods of relief. 

(d) Lessons in tangles. 

References : 

Sprague., O. M. W., History of Crises under the National 

Banking System, 216-321 ; 428-460. 
National Monetary Comm. Report. D. R. 
The Currency Problem, Columbia Univ., Press, 1908. IX. 

XXVII. 
Conant, C. A. Modern Banks of Issure. 4th ed., 698-721. 
White, Money & Banking, 411-16. 

X. Gold and the High Cost of Living. Effect of the increas- 
ing production of gold on prices. 

References : 

Moody's Magazine, V. I, 12-80. Room 121. 
Conant, C. A., Money and Banking, Vol. I, 80-112. 
Ashley, "W. J., Gold and Prices. 

XL The New York Clearing House. 

(a) The function. 

(b) Its machinery. 

(c) Its influence on business. 

(d) Its banking function. 

References : 

Cannon, J. G., Clearing Bouses, 1-223. 

Bolles, A. S., Money, Banking 8c Finance, 275-286. 

The Currency Problem, Columbia Univ. Press, 1908, 95-118. 

XII. The Greenbacks. 

(a) History. 

(b) Present status. 

(c) Effect on industry. 



200 Elementary Economics Manual 

References : 

Knox, J. J., United States Notes, Chapters 9 and 10. 
Mitchell, W. S., History of The Greenbacks, 1-131. 
Indianapolis Monetary Comm. Report, 1898, 398-444 
White, Horace, Money & Banking, 106-140 

XIII. Foreign Exchange. 

(a) Methods and operations. 

(b) Role in international economy. 

References : 

Johnson, J. F., Money & Currency, Chap. V. 

Pratt, S. S. } The Work of Wall St., Chap. VIII. 

The Currency Problem, Columbia Univ. Press, 1908, 63-87. 

Goshen, G. F., Foreign Exchange, 1-84. 

Escher, F., Elements of Foreign Exchange. 

XV. Qualifications of a Good Investment. 

References : 

Moody, Art of Wall St. Investing, 1-74. 

Conway & Atwood, Investment and Speculation, 9-55. 

Chamberlain, Principles of Bond Investment, Chap. 3. 

XVI. Investments and the Machinery for Handling Investments. 

References : 

Bolles, A. S., Money, Banking & Finance, 317-24. 
Conway & Atwood, Investment & Speculation, 9-55. 
Cleveland, Funds and Their Uses, Chap. 8. 
Chamberlain, The Work of the Bond House. 



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TOPICS ON TAXES. 

I. The Federal Income Tax. 

(a) Provisions of the law. 

(b) Its administration. 

(c) Effect on Gov't, finance. 

References : 

Quarterly Journal of Econ., Nov. 1913, 46-69. 
Journal of Pol. Econ. March 1914, 318-239. 

II. Tariff Law of 1913. 

(a) Change in tariff policy. 

(b) Analysis of the principal schedules. 

(c) Administrative changes. 

References : 

Quarterly Journ. of Econ., Nov. 1913, 1-46. 
Journal Pol. Econ., Jan. 1914, 1-43. 
Journal Pol. Econ., Feb. 1914, 105-132. 



201 



TOPICS ON RAILROAD AND PUBLIC UTILITY CONTROL. 

I. Powers and Activities of the Interstate Commerce Com- 
mission. 

Interstate Commerce Law of 1887. 

References : 

Ripley, Railroad Rates and Regulation, Chapters 13 and 

14. 
Meyer, Railway Legislation in the U. 8., 287-318. 
Hepburn Law of 1906. 
Ripley, Railroad Rates and Regulation, Chapters 13 and 

14. 
Ripley, Railway Problems, Chap. 22. 
Mann Elkins Law of 1910. 

Ripley, Railroad Rates and Regulation, Chapters 17 and 
18. 
Trade Commission Law. 

II. The Sherman Law as Applied to Railroads. 

References : 

Johnson, E. R., Elements of Transportation, p. 106-7. 
Meyer, B. H., The Northern Securities Co., Univ. Bui. 
Journal of Commerce, Dec, 7-1912. Text of Union Pac. De- 
cision. 
Quarterly Journal of Econ., V. 27, 295-328. 
Quarterly Journal of Econ, Aug. 1914, 772-795. 



202 



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